NAIC Group Capital Calculation Will Not Become Model Law
April 5, 2016 by Thomas Harman
NEW ORLEANS – The new capital standard calculation to be developed by the National Association of Insurance Commissioners will be just that – and not a model law – according to the chairman of the panel responsible for its development.
The issue was one of concern to industry officials watching to determine what the ultimate goal of the group capital calculation working group – holding its inaugural meeting April 3 during the NAIC’s Spring National Meeting will be. The panel’s work on a calculation begins as the International Association of Insurance Supervisors begins to implement an international capital standard and as the Federal Reserve is working on a domestic capital standard of its own.
In response to a question from Bruce Ferguson, senior vice president of the American Council of Life Insurers, about whether the calculation might become a model law, panel Chairman David Altmaier said the charge given the working group last fall was to create a calculation rather than a standard and viewed it as supplementary to regulatory efforts with the Own Risk Solvency Assessment model and the Holding Company Model Act filings. He said the group capital calculation would not have the authority of a model. “There are still many unanswered questions as we work through these problems,” Altmaier said. “The goal is to work as quickly and as efficiently as possible.”
NAIC President John Huff, Missouri’s insurance director, has said the calculation will be constructed with opportunity for stakeholder input and it will move quickly through the NAIC approval process (Best’s News Service, March 22, 2016).
Ferguson, commenting for both the ACLI and the American Insurance Association, offered an approach that included aggregation of local solvency measures that uses local and required capital to determine a group solvency ratio, reflects group activities and risks and applies adjustments where needed to aggregate across the group’s entities and activities. Ferguson’s written testimony described the plan as a principles-based approach that helps ensure comparability and transparency, regardless of a group’s structure or regime.
Ferguson said there were policy issues other than whether the calculation might become an NAIC standard that need to be addressed. These included having NAIC follow due process in adopting a new capital calculation since there is no regulatory or statutory requirement and the need for regulatory confidentiality on the potential results of a calculation.
Among the questions the working group will have to address is whether the calculation can be applied to groups regardless of size. Exceptions have been made in other instances, including exemption of some small companies from the Own Risk and Solvency Assessment rule. Ferguson said this “will be an important question for regulators to determine.” Ferguson said exemption thresholds at which a group calculation should apply are complicated ones. “It’s an open issue for us as it is for you,” he told the panel.
Altmaier said the new group would use a risk-based aggregate approach that will allow regulators to use tools already available in calculating risk. Doug Slape, deputy commissioner in the Texas Department of Insurance, however, said that some in the insurance industry have told him that they are backing away from the aggregate approach. Michelle Rogers, director of financial and regulatory policy at the National Association of Mutual Insurance Companies, told the panel her group would support the aggregate approach, saying it provides the simplest means of calculating capital amounts.
Questions were also raised about whether the calculation would need to cover all entities within a group, including non-insurance entities of insurers. Ferguson said non-insurance entities could be addressed under Basel 3 rules.
(By Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com)
BN-NJ-4-4-2016 0940 ET #
