NAIC field testing for group capital calculation kicks off

The National Association of Insurance Commissioners is embarking on its field testing project as part of its goal to create a consolidated system of calculating insurance group capital, with an estimated testing  time frame of 150 days or about five months. 

According to meeting materials from the NAIC’s Group Capital Calculation Working Group,  the field testing includes 31 confirmed insurer volunteers from 15 states. The data tested will belong to 2018, for the most part, according to the group which met by phone May 2.

A kick-off meeting and webinar for the insurers and the lead states in the project was expected  soon after the conference call. Florida and Connecticut commissioners chair the working group, which has about 20 state regulator heads as members.

The actual data and specific insurer calculations in the voluntary field testing information will be confidential. However, general  questions and answers that have been rendered generic and unspecific to an insurer will be posted to the working group page on the NAIC website periodically starting in or about the third week in May, according to the regulatory working group.

The NAIC has stated in its material that although state regulators already do a group analysis on all U.S. insurance groups, they don’t as of yet have a consolidated statutory accounting system and financial statements to assist them in” efforts such as assessing risks and financial positions of the holding company. 

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The GCC (group capital calculation) uses a risk-based capital aggregation methodology, which builds on existing capital requirements for the insurance “legal entity” as identified bu state insurance regulators, according to the NAIC.

The move comes against the backdrop of international efforts to force an insurance capital standard and the U. S. And other jurisdictions attempts to forge a harmonious method to get there and calculate it. The Federal Reserve Board is also working on a capital standard for the insurers under its oversight. These are now those insurers organized for various reasons as savings and loan holding companies. 

“The overall purpose of this assessment is to better understand the risks that could adversely impact the ability of (… insurers ) to pay policyholder claims …. Consistent with sound regulation, the benefits of the quantitative analysis facilitated by the GCC should exceed the cost of implementation,” the working group stated in its draft field testing instructions from April 29.

The field testing will gather an array of information, some of it specific to various sectors of the industry, such as input on life insurance reserves from actuarial guidelines for fulfilling long-term premium rate guarantees on term life insurance policies.

Look for more discussion of capital standards at the upcoming NAIC international forum May 13-14 in Washington, D.C. where Secretary Steven Mnuchin is slated to speak. 

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