Group Capital Calculation. Sounds impressive right? Ever heard of it? No? A lot of people haven’t. Well, it’s something you should be aware of and understand how you need to manage this new filing for your company. Let’s dive in.

Group Capital Calculation (GCC) is a tool that regulators have developed together to complement the existing holding company group supervision framework through the NAIC. The intent of the GCC is to create additional transparency for insurers and regulators in coordination with the ORSA and Form F.

After an initial filing by all insurance groups for year-end 2022, the GCC will be required annually for all US insurance groups with greater than $1 billion in premium. The groups subject to the GCC are expected to have domestic insurers in most US states.

The GCC uses an aggregation and elimination approach, where each of the above legal entities’ available capital/financial resources and calculated capital are combined, then eliminations are utilized to prevent any double counting of available capital/financial resources or calculated capital.

As an extremely simplified example, each company within the group would need to provide two amounts to calculate a group capital calculation ratio that is based on available capital divided by calculated capital.

GCC will leverage NAIC RBC requirements at the legal entity level and existing requirements from banks and other jurisdictions. The incremental components are:

  1. Requirements for entities in the insurance group that previously have not had capital thresholds or reporting expectations.
  2. Scalar adjustments to convert non-US, non-insurance capital requirements to a 200% RBC equivalent.
  3. Consolidation of the expected and available capital requirements across the insurance group. This also includes adjustments due to limits on intra-group debt.

Components of the GCC include seven categories for companies in the holding company group as follows:

  • US Insurers subject to RBC
  • US Captive Insurers
  • Non-Insurers subject to capital requirements (ex. Banks)
  • US Insurers not subject to RBC (excluding captives)
  • Non-US Insurers
  • Financial entities not subject to capital requirements
  • Non-financial entities and non-operating holding companies

The NAIC adopted amendments to Holding Company Model Act (#440) and Regulation (#450) in December 2020 and is considering these items as part of revised accreditation standards for states. GCC Template and Instructions adopted by NAIC in December 2020 are available for review on the working group’s website. The NAIC is currently testing filing and calculations with volunteer large group US insurers and will be publishing revisions through this working group.

The GCC is similar to the Building Block Approach (BBA) of the Federal Reserve where holding companies significantly engaged in insurance activities are required to aggregate their state-based capital requirements into a consolidated requirement. A comparison document for both has been created by the NAIC and is located here.

What does your company need to do now? Stay posted for further analysis guidance to be completed in 2021 and familiarize yourself with the template information noted above on the NAIC website. Additional data collection is currently under consideration and open comments requested through the Interested Parties Group. The GCC template and instructions are to be maintained in a similar manner as RBC.

If you have any questions or would like additional information, please feel free to contact me at sharlea.taft@sapiens.com