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NAIC body working to define parameters of group capital calculation

The developmentof a group capital calculationfor U.S. insurance groups might not move as speedily as regulators had hoped, asboth industry and state regulators have pushed back on the purpose, methodologyand scope of such a calculation.

The newNAIC Group CalculationWorking Group met April 3 in New Orleans during the NAIC Spring National Meeting,spurring many questions and furnishing few answers. Insurance industryrepresentatives, as well as fellow regulators, queried the working group, withsome seeking assurances that calculation would not later become a model law butinstead serve as a tool for state regulators.

One ofthe open questions is to which insurance entities a group calculation would apply,said Working Group Chairman David Altmaier, as state regulators at the meeting toyedwith the idea of applying a calculation only to insurance groups of a certain levelof complexity.

The workinggroup's intent is to pursuea risk-based capital aggregation calculation for insurance groups, but even thatapproach has recentlybeen questioned, according to state regulators.

Altmaier,who serves as director of property and casualty financial oversight for the FloridaOffice of Insurance Regulation, noted that he had been approached by insurers thatboth favor and oppose the risk-based capital aggregation approach. It was suggestedby other members of the working group that international standards under developmentmight be shifting away from the approach the NAIC is planning to use.

Altmaiersaid that despite so-called back-stepping by some insurance companies, the workinggroup would go forward with the aggregation approach decided upon in 2015. The NAICremains committed to the risk-based capital aggregation methodology, he reiterated.

PhilBarlow, a life actuary and associate insurance commissioner for Washington, D.C.,questioned how the calculation would be used once it was completed. Altmaier envisionsthe calculation identifying groups that do not have as much capital as they should,but not creating a company action requirement by the state regulator. It would be"another tool in the bucket for state regulators," he said.

The workinggroup was borne out of discussions by the ComFrame Development and Analysis WorkingGroup on various methodologies that would work for states trying to apply a groupcapital calculation. There was a sense of urgency as the NAIC developed its ownapproach and created a working group to pursue it because of the capital standarddevelopments elsewhere, according to Joe Torti III, the former longtime Rhode IslandBanking and Insurance superintendent and NAIC Financial Condition Committee chair.Torti now attends the NAIC meetings as an insurance industry representative withFairfax Financial Holdings Ltd.

The FederalReserve, meanwhile, is working on a capital standard for the insurers it superviseseven as it works with the International Association of Insurance Supervisors oncapital standards for internationally active insurance groups and for global systemicallyimportant insurers.

The NAICdoes not want U.S. companies to be at a disadvantage, Doug Slape, financial regulationdeputy commissioner for the Texas Department of Insurance, said following the workinggroup meeting. Slape, who is also a working group member, suggested during the meetingthat the Fed might be close to proposing its long-awaited insurance capital rule.A representative for the Fed in attendance was mum on any such plans.

Insurancerepresentatives have also fretted that an NAIC-developed group capital calculationcould be added to a financial examination manual without due process and changedwithout due process, among other concerns.

MichelleRogers, director of financial and regulatory policy for the National Associationof Mutual Insurance Companies, told the working group that NAMIC members had notyet come to an agreement on the approach to a capital calculation. She wanted toknow about the intended purpose of the calculation, asking whether the NAIC waslooking at risks to the entire system or seeking to address every single holdingcompany in existence.

Altmaiersaid the goal of the calculation is to meet the NAIC's regulatory needs, but ifit can also serve U.S. insurers as a version of an approved IAIS capital standard,then it would be a "win-win" situation.

But JefferyAlton, vice president of global regulatory policy and affairs at , told Altmaier that hewas worried instead about a "lose-lose" situation.

If theNAIC calculation does not capture or reflect all the other capital standards, thenthere will be four or five calculations insurers must make, which is not at allefficient, Alton stressed. ??He suggested that the NAIC? make any group? calculationreflect ?an IAIS standard so that the international supervisors can ?accept? theU.S. version?.