Initial work will focus on organizing risks and potential concerns among interested parties, Ms. Bennett explained. That will include a meeting with the New York-based Securities Valuation Office (SVO) investment rating arm of the NAIC.

The results that ultimately come out of the work on this project could present an opportunity to examine all RBC factors for assets, many of which “have not been looked at in a long time,” she said, noting that liability factors for RBC have been studied more.

Theoretically, a principles-based approach applied to the liability side could also be applied to the asset side of RBC calculations creating greater consistency, she said, adding that the practicality of such an approach would also need to be explored.

“We believe that the ratings on securities from rating agencies already capture the risk,” said Mary Kuan, vice president and assistant general counsel with the Securities Industry and Financial Markets Association, New York, during the NAIC call.

In a joint Feb. 6 letter, ACLI and SIFMA wrote that these ratings “are currently determined security by security, and consider the structures of individual hybrid securities, including call features and default/recoveries, as well as other important factors.”

But the SVO has maintained that not all risks are reflected in ratings of rating agencies. Ms. Bennett agreed that the Academy generally acknowledges that not all risks are captured. For instance, she said, SVO generally maintains that extension risk–the lengthening of a security because of a slowdown in prepayments–is not captured. The question then is to determine how material that risk is, she explained.

In the letter, Principal Financial Group's Julia Lawler, senior vice president and chief investment officer, responded to the Academy's questions for insurers. She explained that extension risk poses both risk and opportunity created by an income bonus that becomes available when coupon payments switch to floating rate payments.

Addressing risk and experience studies, Ms. Lawler wrote that deferred hybrid payments are correlated to debt default. Spectrum Asset Management, an affiliate of Principal Global Investors, a Principal unit, found that of 19 issuers deferring hybrid payments since the advent of hybrid securities in 1993, 14 defaulted on debt and went into Chapter 11. The 14 issuers represented 72 percent of total deferred experience.

“A hybrid preferred issuer that omits a payment has about an 80 percent chance of impairment in a bankruptcy proceeding,” she wrote.

Ms. Lawler noted, however, that payment deferral risk is “already appropriately and significantly reflected in the probability of default factor from an enterprise perspective.”