The National Association of Insurance Commissioners (NAIC) is discussing whether to implement changes in risk-based capital (RBC) and disclosure standards, which could complicate insurers' practice of holding residential mortgages on their books, giving them incentive to put the home loans into securitization trusts instead.
The changes could impact tens of billions of dollars in mortgages, which insurers have increasingly purchased each year since the pandemic.
In its August 12 meeting, the Statutory Accounting Principles Working Group (SAPWG), a subgroup within the insurance standard setter, requested comments on proposals to change the definition and reporting of residential mortgage loans. Comments are due October 2.
A revised rule could impact tens of billions of dollars. Insurers purchased $25 billion in mortgages in the first half of 2026. On an annualized basis that rests well below the $59 billion acquired in full-year 2025. That was a record year, following steady annual climbs since 2020, when insurers purchased only $9 billion in mortgages, according to BofA Global Research.
Redefining Mortgage Categories
Ultimately, the proposals could result in redefining mortgage loans that hold some commercial loan characteristics, such as loans to transitional or development-stage properties, or a large loan financing numerous single-family rental properties. That could result in new classes of mortgages with different RBC and disclosure requirements.
The larger the pool of loans, the more cost-effective it [may] be to securitize.
While the proposals do not directly impact residential mortgage-backed securitizations (RMBS), according to Dallin Merrill, head of policy at the Structured Finance Association, there could be indirect implications. For example, he said, "If an insurer holds a pool of single-family homes backed by a single loan in a revolving fund facility, that loan could now be subject to the much higher charge of commercial real estate."
One alternative to lowering the RBC could be securitizing the pool, Merrill said. They could also re-underwrite a series of individual loans tied to each property, or simply take the higher capital charge. Where the NAIC ends up remains to be seen, but any changes could make it attractive to move whole loans into a securitization.
"The larger the pool of loans, the more cost-effective it [may] be to securitize," Merrill said, "Whereas [with] a smaller pool of loans it may make sense to simply re-underwrite them as individual loans."
In deciding which alternative to pursue, insurers would have to consider several factors, including their operational capabilities and whether the NAIC requires loan-level credit scores, lien positions, owner occupancy and other disclosures.
"If they do, and those factors later result in marginally higher RBC for residential mortgages, it could further tilt incentives towards securitization," Merrill said.
