Group Capital Ratio

Field Testing for NAIC Group Capital Calculation Underway

New tool for insurance regulators to enhance U.S. solvency framework for holding companies

WASHINGTON (June 18, 2019) — The National Association of Insurance Commissioners (NAIC) is well-underway in developing an analytical tool to better understand and quantify financial risks to insurance groups and improve policyholder protections. Preliminary testing of the Group Capital Calculation (GCC) began mid-May and will continue into fall. Results of the process will inform the final calculation which is expected to be adopted in 2020.

Insurance regulators already exercise their legal power to obtain information regarding the financial positions of affiliated business entities. However, there is no consistent or coherent analytical framework for evaluating such information. The GCC is designed to meet this need, delivering financial solvency regulators a panoramic, transparent view of the interconnectedness, activities and capital support for an insurance group. This additional financial metric will assist regulators in identifying risks that may emanate from a holding company system and to take informed and appropriate action in response.

"Development of the GCC began in 2015 and has evolved to meet the needs of regulators and companies," said Eric A. Cioppa, NAIC President & Maine Insurance Superintendent. "Throughout the past four years, we have coordinated with the Federal Reserve, Treasury and regulated entities to be sure our calculations will provide meaningful information for regulators. The testing phase will fine-tune the metrics and provide for a truly workable product for regulators."

The GCC aggregation method, along with related reporting, provides more transparency and will give regulators a window into holding companies to better appreciate and measure risk. Using a lead-regulator approach, states will work with companies to identify material legal entities within the holding company system that may emanate risk to the insurance company.

Importantly, the GCC accounts for the long-term nature of insurance company investments. As such, it avoids unintended consequences such as disincentivizing investments that support critical policymaking surrounding infrastructure, disaster resiliency and retirement savings. Development of the GCC is one of the NAIC's key strategic priorities for 2019.

The current proposal entered the field-testing phase on May 10, 2019 with over 30 U.S. based firms, including property & casualty, life, and health insurers. Field testing will conclude later this year at which time final decisions are expected to be made on any outstanding issues.

"Insights from using the GCC strengthen our solvency framework without being unduly burdensome or costly," said David Altmaier, Florida Insurance Commissioner and chair of the Group Capital Calculation (E) Working Group. "It provides greater analytical capabilities, better identification of risk-bearing group members and is complementary to the U.S. regulatory framework."

The Federal Reserve Board (Fed) is also developing its own group capital standard for U.S.-based insurance led groups that include a depository bank within the group. The Fed has indicated that its standard, like the GCC, will be built upon the regulatory capital rules of subsidiaries' functional regulators. The NAIC and Federal Reserve have worked closely together on the development of their respective approaches.

About the NAIC

As part of our state-based system of insurance regulation in the United States, the National Association of Insurance Commissioners (NAIC) provides expertise, data, and analysis for insurance commissioners to effectively regulate the industry and protect consumers. The U.S. standard-setting organization is governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews, and coordinate regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. For more information, visit

Related Content