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

Tim Antonelli, CAIA, CFA, FRM, SCR, Head of Multi-Asset Strategy – Insurance
October 2024
6 min view
2025-10-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
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The views expressed are those of the speaker at the time of filming. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, oraccredited investors only.

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.

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
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