NAIC Proposes Eliminating Investment Subsidiary Reporting in Insurer Statements

The National Association of Insurance Commissioners (NAIC) is proposing to eliminate references to “investment subsidiaries” from annual statement blanks and life insurer risk-based capital (RBC) instructions, effective December 9, 2025.

Investment subsidiaries are entities created solely to hold permitted investments without conducting other activities. The NAIC’s Statutory Accounting Principles Working Group (SAPWG) supports this proposal to enhance transparency and regulatory oversight since current practices allow insurers to obscure their investment holdings by using these subsidiaries, potentially circumventing prescribed asset treatment and state investment limitations.

SAPWG highlights that investment subsidiaries allow companies to self-calculate RBC treatments by placing investments in these entities, thereby avoiding direct asset detail reporting and complicating regulatory verification processes. For example, private letter rated investments held in such subsidiaries may bypass the NAIC Statutory Valuation Office’s reporting requirements. Additionally, the undefined term “imputed statutory value” currently used for such subsidiaries conflicts with SSAP No. 97, which mandates valuation based on audited U.S. GAAP, compromising the reliability of the reported capital calculations.

Despite the NAIC’s move to phase out investment subsidiary reporting in statutory blanks and RBC instructions, several state statutes—including those in New York—explicitly recognize investment subsidiaries for permitted investments under certain conditions. New York Insurance Law defines investment subsidiaries as entities exclusively managing assets authorized for the insurer parent company, allowing a look-through treatment where the underlying assets are valued directly and investment concentration limits are assessed at the insurer level.

This regulatory adjustment indicates a shift towards stricter investment reporting standards for insurers, aiming to close regulatory gaps that might allow risk mischaracterization through subsidiary structures. Insurers operating across multiple jurisdictions, particularly in states that permit investment subsidiaries under statute, will need to carefully monitor these evolving frameworks to maintain compliance and transparent capital reporting.

Overall, the proposed amendments illustrate the NAIC’s effort to align statutory accounting and RBC methodologies with principles of clarity and verifiability. By removing investment subsidiaries from formal reporting, regulators expect improved oversight of insurer investment portfolios and enhanced accuracy in risk-based capital assessments, thereby supporting a more robust and transparent insurance financial regulatory environment.