Comment Letter: NAIC SAPWG Proposal to Amend PBBD to Address ALM Risk in ABS

LSTA and the ACC submitted joint comments on NAIC Agenda Item 2026-10. The item would amend Statement of Statutory Accounting Principles (SSAP) No. 26, Bonds, so that asset-backed securities with "significant" embedded asset-liability management (ALM) risk no longer qualify as bonds. The letter supports the Statutory Accounting Principles Working Group's (SAPWG) goal of monitoring ALM risk, but warns that the proposed standard is too vague. Because losing bond treatment can raise risk-based capital charges materially regardless of credit quality, the standard could classify economically similar structures inconsistently, including high-quality CLOs held widely by life insurers. LSTA and ACC recommend a practical expedient that keeps bond treatment for structures with reinvestment periods of seven years or less, or with an underlying-asset weighted average life above a threshold set through data. They also ask that any finding of "significant" ALM risk consider structural mitigants such as mandatory amortization, coverage triggers, hedging and subordination.