Overview of NAIC’s Actuarial Guideline 55

Actuarial Guideline 55¹ (Reinsurance Asset Adequacy Testing, AG 55) is a newly adopted guideline from the National Association of Insurance Commissioners focused on life insurers that engage in certain reserve financing or asset-intensive reinsurance treaties, effective as of December 31, 2025.

This white paper examines the Alternative Run section of the regulation (section 6.B.iv.), which considers alternative starting asset amounts in addition to the starting asset amounts specified for the mandatory run. Alternative runs under AG 55 are additional cash-flow projections designed to capture risks the mandatory run may not fully address but that are in line with the spirit and intent of AG 55.

This paper provides alternative run examples and considerations that could directly affect insurers with reinsurance agreements subject to AG 55. Companies should develop their own views into alternative runs, especially as they relate to excess capital, which may or may not be identical to those we provide here as well as those developed by their domiciliary commissioners.

Actuarial Guideline 55: Alternative run 1

Under this affiliated 100% coinsurance with funds withheld (FWH) transaction (section 6.B.iv.(c)(1)):

• The amount of FWH assets exceeds the post-reinsurance reserve.
• Excess capital supported by non-Guideline Excluded Assets commensurate with U.S. risk-based capital standards, is demonstrated to be held and dedicated to and available for the support of the reinsurance business, if needed.

If the stated conditions are met, then the starting asset amount for the cedant is the FWH amount for non-excluded assets.²

This example identifies, in addition to the excluded FWH assets, an extra $1 million of excess capital that the cedant may choose to take into account and argue to the regulator that the starting asset amount should be $96 million, not $95 million as is provided by AG 55.

Actuarial Guideline 55: Alternative run 2

Under this affiliated 100% coinsurance with FWH transaction (section 6.B.iv.(c)(2)):

• The FWH assets exceed the reserve held at the assuming company.
• Excess capital supported by non-Guideline Excluded Assets commensurate with U.S. risk-based capital standards, is not demonstrated to be held and dedicated to and available for the support of the reinsurance business, if needed.

The starting asset amount may equal the FWH amount minus a portion of the FWH amount set aside to support capital needs.

There are various scenarios where, for alternative run 2, the excess capital condition is not met. The following is a non-exhaustive list of examples. The next few sections discuss these different examples and possible considerations.

Alternative run 2—Insufficient excess capital

In this example, it is determined that excess capital cannot be demonstrated to support the reinsured block and, therefore, the starting asset amount for the cedant is the FWH asset minus a portion of the FWH amount set aside to support capital needs.

Alternative run 2—Reinsurer does not calculate risk-based capital but can estimate it

In the example, the reinsurer is domiciled in a foreign country and does not calculate capital that is commensurate with the Risk-Based Capital standard; therefore, excess capital is not demonstrated held, even though the foreign country’s capital is dedicated and available for the reinsurance transaction.

Further, the cedant lacks resources to estimate the Risk-Based Capital amount on the reinsurance business. In this case, alternative runs may not apply.

If the cedant is able to estimate the amount of the Risk-Based Capital, it may possibly use one of the alternative run 2 examples and argue that it could be appropriate to use a higher starting asset amount if that is a result of the alternative run.

Alternative run 2—Reinsurer calculates capital in aggregate

In this example, the reinsurer underwrites multiple FWH reinsurance transactions; however, it only calculates the required capital on an aggregate basis but may hold a portion of the capital specifically for the cedant.

Alternative run 2—Reinsurer has restrictions on assets

This example reviews if excess capital has restrictions like encumbrances or assets that cannot be sold.

The reinsurer allows the FWH assets to have restrictions (such as encumbrances) and, while the reinsurer has excess capital demonstrated held for and dedicated to the support of the reinsurance business, it is not available to support the reinsurance treaty. The cedant therefore would decrease the starting asset amount by the portion of the excess capital with availability restrictions.

Actuarial Guideline 55: Alternative run 3

Under this nonaffiliated 100% coinsurance with FWH transaction (section 6.B.iv.(c)(3)):

• The funds withheld assets exceed the reserve held at the assuming company.
• Excess capital is available (perhaps determined with the assistance of the domestic regulator) but is not necessarily dedicated to support the reinsurance business.

The starting asset amount may equal the FWH amount minus an amount available to support capital needs.

Other considerations regarding the NAIC’s Actuarial Guideline 55

The following is a list of other scenarios not discussed earlier in this paper that may have AG 55 implications.

• Difference between book value and market creates or reduces excess capital.
• Reinsurer has a single FWH treaty covering multiple transactions.
• Reinsurer also writes direct insurance business.
• Reinsurance structure is not a 100% quota-share arrangement.
• Parties use a structure other than FWH coinsurance (e.g., coinsurance or modco).
• Transaction involves retrocession or pass-through reinsurance.
• Reinsurance transaction includes comfort trust.
• Excess capital includes non-Guideline Excluded Assets commensurate but not identical to U.S. Risk-Based Capital standards.

How to get prepared for Actuarial Guideline 55

Insurers should now think of the implications of alternative runs and whether their treaties are subject to them. Not all treaties (even among the same cedants) may be subject to the same scenarios, and it is important for cedants to:

• Review your treaties to determine whether they could benefit from alternative runs.
• Assess which of the alternative runs may apply.
• Consider your modeling needs associated with AG 55.
• Assess asset segmentation practices to determine appropriate excess capital and the starting asset amount (i.e., minimize Guideline-Excluded Assets or encumbered assets).
• Discuss your AG 55 data and reporting requirements with your reinsurer.
• Discuss AG 55 implications with your domiciliary regulator.

This is the third paper in a series of papers we have planned to send out periodically to keep you informed about the progress and implementation of AG 55. Our original papers are available here:

• Proposed enhancements to reserve adequacy requirements for life insurance companies
• Similar memorandum requirements under AG 55—summary and analysis

Our goal is to ensure that you have the necessary information and support to comply with the new requirements effectively.

If you have any questions about the content of this report or other AG 55-related topics, please contact Yan Fridman, Nathan Hoffman, or Bill Sayre.

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¹ National Association of Insurance Commissioners. (n.d.). Actuarial guideline LV: Application of the valuation manual for testing the adequacy of reserves related to certain life reinsurance rates. NAIC.org. Retrieved January 9, 2026, from https://content.naic.org/sites/default/files/inline-files/Actuarial%20Guideline%20LV%20%28AG%20ReAAT%29%20%281%29_0.docx.

² Throughout this paper, where we refer to excluded assets, we mean Guideline Excluded Assets, provided in section 3.F of AG 55, and where we refer to non-excluded assets, we mean non-Guideline Excluded Assets.