The implications of AG55 (and VM22) on the reinsurance market
On July 14, 2025, along with the voting of VM22 (NAIC Valuation Manual 22) on asset cash flow testing for non-variable annuity lines of products, the Life and Annuity Committee of NAIC also voted to adopt AG55 (Actuarial Guideline 55), a lesser-known reinsurance asset adequacy test requirement (Reinsurance AAT) presented by the Life Actuarial Task Force (LATF).
AG55 aims to ensure that domestic ceding companies maintain adequate reserves by integrating ceded reinsurance into their evaluation of asset-intensive business. It requires the reinsurers to perform asset cash flow testing based on interest rate scenarios that are the same as or equivalent set to the scenarios used under VM22.
AG55 could have important implications on the reinsurance market, including:
· It may require reinsurers segregate assets supporting such reinsurance deals
· It would require reinsurers to enhance regulatory reporting capabilities
· The ceding companies need to consider the ceded businesses when calculating reserves.
It is important to note that, AG55 applies to all reinsurers, including those under the “reinsurance covered agreement.”
If you have engaged or plan to engage reinsurers for part of your non-variable annuity business, or if you are considering any kind of reinsurance related businesses, I would strongly recommend that you study in-depth the implications of AG55 on the reinsurance market.
