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 these groups.

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 capital needs.

  • 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 measurements?
  • 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 requirements)?
  • What is the appropriate scope of an insurance company group for these purposes?

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.