As it continues to develop a "group capital standard"
that would impose capital requirements on insurers and their
affiliated groups on an aggregate basis, the National Association
of Insurance Commissioners (NAIC) is soliciting public comment on
the impact of (i) non-insurers and (ii) non-U.S. entities within
At the NAIC Summer 2016 National Meeting in San Diego, held in
late August, the Group Capital Calculation Working Group adopted a
memorandum containing a series of questions, with accompanying
explanatory text, for public release. During the Working
Group's meeting in San Diego, certain industry representatives
expressed concern regarding the scope of any imposed group capital
standards and, consequently, the challenge of providing sufficient
answers. The chair of the Working Group responded that the scope
would be determined over time, in part based upon the answers and
other feedback gathered from industry. Comments are due by October
26, 2016. The questions are summarized below. They relate to the
so-called inventory approach to determining a group's capital
requirements, which involves an evaluation of capital needs at each
constituent entity. The Working Group has identified the inventory
method as the "most appropriate" way to determine group
Where an insurer group contains a non-insurance company that is
not itself subject to capital requirements under some other regime,
is it appropriate to ascribe a fixed (or "flat") capital
charge, based on the company's book/adjusted carrying value, to
that company for purposes of the group's requirements?
If the Working Group decides that a fixed charge is in fact the
right method, should that charge be 22.5% (which is the current
charge ascribed to non-insurers under the NAIC's existing
risk-based capital, or RBC, regime for insurance companies)?
A "hybrid approach" would apply a fixed charge
initially and then adjust it as additional data are collected; such
an approach could also eventually develop uniform charges for
certain types of non-insurers that are common to the industry such
as insurance agencies. Is a hybrid approach appropriate? If yes,
what data should be collected, and how can that be used in
determining a more risk-focused approach?
Some non-insurers within insurance groups are subject to
separate capital requirements, such as banks. Should their existing
capital charge from that separate regime – or alternatively,
a fixed charge – be applied? If the latter, what would be the
appropriate fixed charge?
In the case of a non-U.S. insurer, should an adjustment (or
"scalar") be made based on the country where the insurer
is located? If yes, what specific financial information should be
obtained for purposes of determining the adjustment factor? If no,
what approach would be more appropriate?
Is analyzing financial information from non-U.S. insurers an
appropriate approach to developing country-specific
If the Working Group elects to base country-specific
adjustments on financial information, should this information be
collected over a number of years, or should a data call be
performed to collect this information now?
If the data are collected over a number of years, what approach
to these entities should be taken in the interim (e.g., current RBC
charge for the entity or the entity's non-scaled capital
What is the appropriate scope of an insurance company group for
The memorandum invites industry to propose, where relevant,
alternative approaches in response to the questions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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