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VI. Principal Regulatory Developments Affecting Insurance Companies
negotiations must appropriately fulfill their duties to advocate for the U.S. insurance market and state-based regulatory regime.” The Appropriations Committee also reminded “those Federal agencies party to IAIS or FSB negotiations not to support consolidated group-wide insurance capital standards for domestically-chartered [IAIGs] that are inconsistent with current state-based insurance standards.”
3. NAIC Group Capital Calculation
In early 2014, the NAIC formed the ComFrame Development and Analysis (G) Working Group (“CDAWG”) to review and provide input on ComFrame and the international group capital developments. CDAWG has also been evaluating possible insurance group capital standards in the United States and working on developing regulatory tools for group capital assessment and oversight for all U.S.-based insurance groups.
CDAWG considered several possible approaches to group capital assessment, each of which incorporated RBC principles, and ultimately recommended an approach based on RBC aggregation, which calculates group capital as the sum of existing regulatory capital calculations for all entities within the holding company system (including, for example, RBC for U.S. insurers and Basel capital requirements for banking entities). CDAWG rejected other possible approaches, such as (i) consolidating Statutory Accounting Principles (“SAP”) rules for all entities in an insurance holding company system and using consolidated SAP financial statements in the RBC formula, and (ii) using existing GAAP consolidated financial statement results in an adjusted RBC formula. The RBC aggregation approach adopted by the NAIC was considered to have the least impact on the industry and regulators because it is most similar to, or compatible with, U.S. RBC.
The NAIC’s Financial Condition (E) Committee will now construct the group capital calculation tool for U.S.-based insurance groups using the RBC aggregation approach, and has been directed by the NAIC Executive Committee to “liaise as necessary with [CDAWG] on international capital developments and consider group capital developments by the Federal Reserve Board, both of which may help
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
inform the construction of a U.S. group capital calculation.” Commissioner Kevin McCarty (FL), Chair of CDAWG, has stated that the group capital calculation is intended to serve as a tool to complement the work regulators do on an individual entity level and will be a valuable solvency enhancement. McCarty emphasized that it is not intended to be a capital requirement or standard and noted that the NAIC will make an effort to coordinate with the IAIS’s development of a global capital standard that is inclusive of the U.S. system. The NAIC and Federal Reserve Board are also reportedly coordinating with respect to their parallel developments of group capital initiatives.
F. Systemically Important Insurance Groups
1. SIFIs and FSOC Transparency
FSOC has been subject to criticism, most notably from Congress, with respect to the perceived lack of transparency in its process for designating SIFIs. In response, in February 2015, FSOC adopted certain revisions to its practices, including: (i) giving companies earlier notice that they have come under consideration for SIFI designation; and (ii) implementing certain procedures allowing for greater company involvement in the designation process, such as allowing a SIFI to meet with FSOC’s staff to discuss its annual review and to provide relevant information, thereby giving the company an opportunity to describe changes made so as potentially to demonstrate that SIFI designation is no longer necessary.
Despite such changes, a House Appropriations Committee report included with the Appropriations Act once again criticized FSOC for lack of transparency, particularly with regard to conversations between FSOC and international organizations like the FSB. The legislative report also expresses a concern that FSOC is “overusing its authority” by designating certain SIFIs, and notes that FSOC would benefit from early and close consultation with primary regulators of companies before determining a SIFI designation. 2016 could potentially see further criticisms from Congress and, perhaps, attempts to curtail the authority of FSOC.
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