Regulatory Bodies | NAIC | Group Capital

Following the financial crisis there has been an increased regulatory emphasis on the overall financial picture of an insurance group, instead of the past focus on individual insurance legal entities within groups. The financial crisis provided a concerning example of how most of the affiliates within an insurance group could be operating soundly with appropriate levels of capital but one small entity, outside of insurance regulatory review, could put the entire group at risk. This has fueled supervisory attention to comprehensive oversight of insurance groups to avoid repetition of this serious consequence. One of the solvency parameters used by regulators is the amount of capital insurance groups hold to support all their legal entities.

NAMIC Position

At the IAIS, NAMIC asserts that only the state regulators in the U.S. should determine capital requirements for U.S. insurance groups. We argue that the international standard should defer to the local jurisdictional capital approach for all countries. We also believe that capital is only one tool for regulators in regulating solvency. Increased levels of capital would have done nothing to prevent the insurance impacts of the financial crisis. No amount of capital could have eliminated the AIG situation.

There are many nuances and unique considerations in capital proposals from each jurisdiction, but the basic issues of concern at the IAIS are as follows:

  • Understand the Problem to be Solved – Any increase or change in capital should start with a clear understanding of what the problem is that is being solved. Without this first step the proper decisions in the creation of the requirement may not be made. Such basic information is needed in any change in regulation.

  • Deference to the State Insurance Regulators – In the U.S. any system creating a capital assessment at the group level should defer to the state insurance risk-based capital approach to insurance capital. State regulators are our primary regulators and significant differences in the approach will be expensive and unworkable.

  • Legal Entity -- We strive to protect the legal entity system of oversight in the U.S. including opposition to any separate group capital requirement.

  • Statutory Accounting as Valuation -- We oppose proposals that would eliminate the mutual insurance companies’ right to use statutory accounting principles, including any consolidated approach that is inconsistent with statutory accounting.

  • No Discounting P/C Liabilities -- We oppose any approach that requires property-casualty companies to discount liabilities since P/C liabilities are generally short-term unlike the liabilities of the life insurance industry.

  • Inclusive Capital Resources -- We argue for the inclusion of surplus notes and other debt instruments to be included as well as equity in the measure of capital held by insurance groups. This protects mutual insurers from a discriminatory impact if only common stock is allowed as capital.

  • No Unnecessary Burdens -- We oppose any approach that will have disproportionately burdensome impact on non-complex, non-international insurance companies.

NAMIC News on Group Capital


Erin Collins
Senior Vice President - State and Policy Affairs