Schedule BA Assets: Valuation, SVO Designations, and RBC Charges

Schedule BA assets are the “Other Long-Term Invested Assets” that an insurance company holds but cannot report on the NAIC Annual Statement’s standard schedules for bonds, stocks, mortgage loans, or directly owned real estate. The category sweeps in limited partnership interests, joint ventures, LLC stakes, collateral loans, residual tranches of structured securities, and debt instruments that fail the NAIC’s bond definition.¹ Because most of these holdings are illiquid and hard to price, the valuation, designation, audit, and capital rules that apply to them are stricter and more consequential than what insurers face on Schedule D.

What Belongs on Schedule BA

The NAIC organizes Schedule BA into reporting groups based on the character of the underlying investment, and further splits those groups by whether an SVO designation has been assigned and whether the counterparty is affiliated.² The principal categories are:

Joint ventures, partnerships, and LLC interests. This is the largest bucket for most insurers and captures private equity commitments, hedge fund participations, and operating joint ventures. It is subdivided by the character of the fund’s underlying assets (fixed income, common stock, real estate, mortgage loans).
Debt securities that don’t qualify as bonds under SSAP No. 26R, typically because they lack a genuine creditor relationship, meaningful credit enhancement, or substantive cash flows.³
Non-registered private funds whose portfolios resemble bonds, mortgage loans, or other fixed income instruments but are not registered under federal securities laws.
Collateral loans and non-collateral loans that do not belong on Schedule B with traditional mortgages.
Residual tranches of securitizations, which lack contractual interest or principal payments and are carried at the lower of cost or fair value.⁴
Surplus debentures, capital notes, and other miscellaneous invested assets, including mineral rights and timber interests.

Collateralized loan obligations can appear on Schedule D, DA, or BA depending on the specific tranche. A residual or equity tranche of a CLO typically lands on Schedule BA because it lacks the contractual payment characteristics required for bond treatment.⁵

How Schedule BA Assets Are Valued

Two statutory standards do most of the work, and which one applies depends on the nature of the holding.

SSAP No. 48: Joint Ventures, Partnerships, and LLCs

Most joint venture, partnership, and LLC interests are valued using the equity method. The insurer starts with original cost and adjusts the carrying amount each period to reflect its share of the investee’s audited GAAP-basis earnings or losses, with distributions reducing carrying value.⁶ The result is a Book Adjusted Carrying Value that moves with the investee’s performance.

Where the insurer holds a minor interest (under 10%) or lacks control, the carrying value is based on the investee’s underlying audited GAAP equity. Investments above 10% or with a controlling relationship follow the equity method as defined in SSAP No. 97, which imposes additional reporting requirements.⁷

SSAP No. 21R: Other Admitted Assets

Assets that don’t fit the joint venture or partnership mold fall under SSAP No. 21R, including collateral loans, debt securities that fail the bond definition, and miscellaneous admitted assets.³ Collateral loans under SSAP No. 21R now require annual audits of the equity collateral pledged; that requirement took effect for the 2023 reporting period.⁸

Residual tranches of structured securities are carried at the lower of cost or fair value, with period-over-period changes recorded as unrealized gains or losses.⁴

Audit Requirements That Affect Admissibility

Whether a Schedule BA asset is admitted to surplus depends on the quality of the investee’s financial reporting. SSAP No. 48 requires audited U.S. GAAP financial statements from the investee. An investment must be classified as non-admitted if those audited statements include substantial doubt about the investee’s ability to continue as a going concern, or if the audit opinion itself contains disqualifying issues.⁷

Limited alternatives exist for minor ownership interests below 10% when audited GAAP financials aren’t available. Non-U.S. investees may use an audited footnote reconciliation to GAAP equity within their foreign-GAAP statements, or audited IFRS financial statements. Domestic investees may in some circumstances use U.S. tax-basis reporting. In every case, the insurer must document why audited GAAP statements could not be obtained.⁷ This is a common sticking point for private fund investments where the manager controls the timing and format of financial reporting.

Impairment Write-Downs

Schedule BA assets require ongoing monitoring for other-than-temporary impairment. Under SSAP No. 48, a write-down is mandatory when it becomes probable that the insurer cannot recover the carrying amount, or when there is evidence that the investee cannot sustain earnings sufficient to justify the current carrying value.⁹

A fair value that dips below carrying value is not automatic grounds for an impairment charge, and operating losses at the investee level don’t automatically trigger a write-down either. The insurer must weigh all relevant factors in judging whether the decline is temporary or permanent. When a write-down is warranted, the investment gets marked to fair value as its new cost basis, the reduction is booked as a realized loss, and the new basis cannot be written back up even if the investee later recovers.⁹ This one-way ratchet is where many insurers underestimate the permanence of the decision.

SVO Designations and RBC Charges

The Securities Valuation Office is the gatekeeper for fixed income treatment on Schedule BA. If an insurer believes a holding has the underlying characteristics of a fixed income instrument, it can file the asset with the SVO and request a credit assessment. The SVO first evaluates whether the fixed income characterization is justified, then, if it agrees, performs a credit analysis and assigns an NAIC Designation.¹⁰

Designations run NAIC 1 through NAIC 6. NAIC 1 reflects the highest credit quality; NAIC 2 is high quality with low but potentially increasing risk; NAIC 3 sits in the middle with speculative elements; NAIC 4 and 5 represent progressively higher risk; and NAIC 6 is assigned to obligations in or near default.¹¹ The designation drives the risk-based capital charge, which is why insurers invest the time and expense to file with the SVO whenever an asset genuinely has fixed income characteristics.

Schedule BA assets without an SVO designation are reported in an “Other” subcategory and face a blanket RBC charge rather than graduated treatment.¹⁰ Residual tranches are specifically ineligible for certain designations, including NAIC 5.B and NAIC 6*.¹²

In practice, undesignated Schedule BA assets have historically carried a 20% risk factor in the property/casualty and health RBC formulas, against bond factors ranging from as low as 0.1% for the highest-rated obligations up to 30% for the lowest. That spread directly reduces surplus available for other purposes. Assets that receive an SVO designation and fall within a fixed income reporting category can qualify for the graduated bond-like RBC treatment. Collateral loans on Schedule BA carry a separate RBC factor of 6.8% in the life formula.¹³

Concentration Limits

State investment laws cap how much of an insurer’s portfolio can sit in Schedule BA-type holdings. Under the NAIC’s Investments of Insurers Model Act, investments not otherwise permitted by the act are limited to 5% of the first $500 million of admitted assets plus 10% of admitted assets above $500 million.¹⁴ States adopt their own versions, and the caps typically run between 5% and 10% of admitted assets. Amounts above the limit get classified as non-admitted, reducing surplus just as a valuation loss would.

Filing the Schedule

Every Schedule BA holding needs a CUSIP or an equivalent identifier assigned by the SVO. Where no external identifier exists, the insurer assigns an internal tracking number and applies it consistently across reporting periods.¹⁵ The legal name of the entity or the description of the investment must match the underlying subscription or loan agreement exactly, because regulators trace reported assets back to the originating contract during examinations.

Other required data points include the date of original acquisition, the jurisdiction or physical location of the asset, the reporting subcategory (fixed income, common stock, real estate, other), and whether the counterparty is affiliated or unaffiliated. Affiliation drives which reporting line the asset populates and can affect RBC treatment and concentration-limit calculations.

The Annual Statement filing deadline is March 1 for property, life/fraternal, health, and title insurers. Combined property and casualty filers have until May 1.¹⁶ The NAIC filing fee is also due by March 1.¹⁷ Once the NAIC accepts the submission, data is distributed to every state department where the insurer is licensed; each state then reviews against its own investment limits and solvency standards.¹⁸

Statutory vs. Tax Reporting

The figures reported on Schedule BA for statutory purposes rarely translate directly to the federal tax return. Statutory and tax accounting diverge on depreciation methods, amortization of premiums, treatment of capital gains, and how investment expenses are recognized. Insurers compute statutory-to-tax adjustments to reconcile Annual Statement balances to taxable income, much like the book-to-tax adjustments non-insurance corporations make. Common adjustments include elimination of NAIC-specific amortization and depreciation, differences in market discount accrual, and the treatment of tax-exempt interest.

Schedule BA amplifies the complexity because many of its holdings are pass-through structures. The insurer picks up its share of the investee’s income, deductions, and credits on a tax basis that may differ substantially from the GAAP-based equity method used for statutory reporting, so the two sets of numbers will not tie without a detailed reconciliation.

1
National Association of Insurance Commissioners. Schedules A, B, and BA
2
National Association of Insurance Commissioners. Schedule BA – Reporting Lines
3
National Association of Insurance Commissioners. SSAP No. 21R – Other Admitted Assets
4
National Association of Insurance Commissioners. SSAP No. 43R – Residual Tranches
5
National Association of Insurance Commissioners. Collateralized Loan Obligations – Structured Securities Group
6
National Association of Insurance Commissioners. SSAP No. 48 – Equity Changes
7
National Association of Insurance Commissioners. SSAP No. 48 – Alternative Valuation of Minority Ownership
8
National Association of Insurance Commissioners. SSAP No. 21R – Other Admitted Assets
9
National Association of Insurance Commissioners. Statutory Issue Paper No. 48 – Investments in Joint Ventures, Partnerships and Limited Liability Companies
10
Indiana General Assembly. Purposes and Procedures Manual of the NAIC Investment Analysis Office
11
National Association of Insurance Commissioners. Purposes and Procedures Manual of the NAIC Investment Analysis Office
12
National Association of Insurance Commissioners. Purposes and Procedures Manual of the NAIC Investment Analysis Office
13
National Association of Insurance Commissioners. Capital Adequacy (E) Task Force RBC Proposal Form – Schedule BA Collateral Loans
14
National Association of Insurance Commissioners. Investments of Insurers Model Act (Defined Standards Version)
15
National Association of Insurance Commissioners. Securities Valuation Office
16
National Association of Insurance Commissioners. 2025 Annual 2026 Quarterly Financial Statement Filing Deadlines
17
National Association of Insurance Commissioners. Filing Fee Payment Information and Instructions
18
National Association of Insurance Commissioners. Industry Financial Filing Guide