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Group Capital Calculation

Last Updated 10/14/2021

Issue: U.S. state insurance regulators have adopted a group capital calculation (GCC) for use in solvency monitoring activities. The calculation is intended to provide additional analytical information to the lead state for use in assessing group risks and capital adequacy to complement the current holding company analysis in the U.S. It includes information on potential risks to policyholders emanating from outside the insurance companies, as well as the location and sources of capital within the group. The calculation will help state insurance regulators perform an assessment of capital when combined with other information obtained by state insurance regulators. This includes group organizational information provided on Schedule Y, enterprise risk information on Form F, and internal risk self-assessment information in Own Risk and Solvency Assessment (ORSA) filings (where applicable). 

Background: Beginning in 2008, through the NAIC Solvency Modernization Initiative (SMI), U.S. state insurance regulators devised plans for revisions to group supervision. During and after the SMI, considerable attention was given to the framework around group supervision. Considerable revisions were made to the Insurance Holding Company System Regulatory Act (#440), which introduced supervisory colleges and included the implementation of a new regulatory filing; i.e., the Enterprise Risk Report (Form F). In addition to these revisions, state insurance regulators also implemented the Risk Management and Own Risk and Solvency Assessment Model Act (#505), which required certain insurance companies and/or insurance groups to file an ORSA summary report with their lead state insurance regulator. 

The GCC is intended to fit seamlessly and efficiently with these and other group supervision tools currently implemented by state insurance regulators. This analytical tool is designed to include information on potential risks, as well as the location and sources of capital within the group. As such, the tool can only be helpful to the extent that it is consistent with the lead state insurance regulator’s view of such risks and sources. The scope of the group is determined by the lead state based upon their understanding of the group and considering the input of other domestic states or other state insurance regulators that have an entity in the group. 

While the default starting point for the group should be the ultimate controlling person as defined in Model #440, it is incumbent upon the lead state to define the scope of application differently if the facts and circumstances suggest a different approach is more appropriate. The proposed approach to establishing the scope of the group for the purposes of applying the GCC leverages existing group supervision tools and allows for lead state insurance regulators to utilize information gained from these tools, as well as communication with other state insurance regulators to drive the implementation of the GCC. 

In addition, the NAIC is working with other interested jurisdictions, both domestic and international, to develop the Aggregation Method (AM). While influenced by the GCC and calculated in a similar manner, the AM will be more jurisdictionally agnostic, and perhaps simpler, than the GCC. By 2024, the International Association of Insurance Supervisors (IAIS) will assess whether this method provides comparable outcomes to the consolidated group insurance capital standard (ICS) that it has been developing for use with Internationally Active Insurance Groups (IAIGs). In November 2019, the IAIS agreed to a definition and approach to the assessment of comparable outcomes. While there are still several unknowns, including how the ICS is intended to be implemented as a Prescribed Capital Requirement and the exact relationship of the AM and the GCC, this agreement does provide a path for the AM to be “outcome-equivalent” to the ICS. 

Status: States are committed to the implementation of the GCC as an additional solvency evaluation tool. The Group Capital Calculation (E) Working Group leads this effort. The Working Group adopted the GCC instructions and template in November 2020, and it has been adopted by the full NAIC membership. A “Trial Implementation” phase is being conducted in 2021, whereby selected groups will submit data to lead states using the adopted template. Additionally, in Fall 2020, the Working Group adopted revisions to Model #440 and the Insurance Holding Company System Model Regulation with Reporting Forms and Instructions (#450). The amendments to the models provide legislative language that states can use to enable the GCC. 

Furthermore, analytics guidance is being drafted by a group consisting of several members of the Working Group and several interested parties. When finalized, the guidance will become part of the NAIC Financial Analysis Handbook (Handbook), which state insurance regulators will use in reviewing the group capital submissions. The Handbook guidance will be completed in Spring 2022. 

Committees Active on This Topic

Additional Resources

Group Capital Calculation Collection
NAIC Research Library

GCC Summary
Group Capital Calculation (E) Working Group

Insurance Group Supervision
April 2012, CIPR Newsletter

Contacts

Media queries should be directed to the NAIC Communications Division at 816-783-8909 or news@naic.org.

Dan Daveline
Director, Financial Regulatory Services
Phone: 816-783-8134

NAIC Center for Insurance Policy and Research (CIPR)

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