Evolutionary, Not Revolutionary: The Looming Change in Bond C1 Factors for Life Insurers
After nearly a decade of discussion, changes are expected to risk-based capital (RBC) charges for life insurers. While these changes will likely impact insurance company portfolios, Conning notes that maintaining a holistic approach to investment strategy remains paramount.

The proposed changes in C1 factors for bonds and the portfolio adjustment factor are expected to lower RBC ratios but Conning believes the industry is well capitalized and should be able to sustain performance. In our latest Viewpoint, “Evolutionary, not Revolutionary,” authors Matthew Reilly and Mary Pat Campbell note that the changes may encourage insurers to increase investments in less liquid securities, structured securities and other assets offering relatively higher capital-adjusted yields.

While tactical opportunities may arise, the authors note that insurers will likely see greater benefits by incorporating a holistic investment strategy that manages the many needs of their balance sheet.
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