Insurance Quick Takes: Navigating the Principles-Based Bond Definition Project

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Tim Antonelli, CAIA, CFA, FRM, SCR           Head of Multi-Asset Strategy - Insurance and Portfolio Manager

As we near the 1 January 2025 “go-live” date of the NAIC’s Principles-Based Bond Definition (PBBD), US insurers are grappling with classification methodologies, operational needs, and monitoring and reporting processes. In our latest Insurance Quick Take, Tim Antonelli aims to help US insurers navigate the change ahead with thoughts on the rationale behind the PBBD, its implications, and the operational challenges. He emphasizes the importance of transparency, due diligence, and accurate classification of investments.

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Key points:

• The impact on reporting requirements, including the burden to maintain documentation
• Bright-line tests for meaningful cash flow and variable interest adjustments
• The significance of having a view on what constitutes substantive credit enhancement and meaningful cash flow in debt servicing
• Reporting positions on Schedule D1 and D1 Part 2, and the implications for asset-backed securities
• The reclassification of certain structures, such as principal-protected notes and structured notes
• The potential impact on risk capital charges and the importance of SVO ratings for life insurers