Parent companies of insurers doing business in New York would be required to file a “group capital calculation,” or GCC, with the Superintendent of Financial Services under legislation introduced in the state Senate on May 3, 2022. The GCC requirement, which parallels efforts by the National Association of Insurance Commissioners (NAIC) across the states, would for the first time require a New York insurer to quantify needed and available capital at its group, rather than individual legal entity, level. The bill was assigned to the Senate floor calendar on May 9, 2022.
GCC has been a controversial topic since its introduction at the NAIC a few years ago, with carriers expressing concern that what started as a regulatory tool would morph into a hard requirement with regulatory teeth, i.e., penalties for perceived capital deficiencies. When the GCC and related liquidity stress test framework was added to the NAIC’s Insurance Holding Company System Regulatory Act (Model Act) in 2020, it required insurers for the first time to look beyond their entity-based risk-based capital (RBC) determination and to quantify capital at the level of the holding company group. By the same token, the Model Act amendments did not prescribe any particular consequences or remedies for falling below a required threshold of capital. By contrast, under the 27-year-old RBC regime, an insurer can be subject to regulatory sanction, including receivership in extreme cases, if its entity-level capital is inadequate.
The Senate’s official bill summary explains that the addition of a GCC requirement is meant to conform to the “covered agreements” between the U.S. and the EU (2017) and the U.K. (2018), respectively, on reciprocity in insurance regulation. The 60-month timeline for states to conform their laws to the EU covered agreement ends later this year. Among other things, the covered agreement contemplates generally that, in the case of an insurer domiciled in one jurisdiction whose parent is resident in another jurisdiction (where both jurisdictions are parties to the covered agreement), the insurer’s jurisdiction should not impose a group capital requirement on the worldwide parent as long as the regulation of the group by the jurisdiction of the parent is sufficiently robust. The bill summary indicates that states must have a “worldwide group capital calculation in place by Nov. 7, 2022 to avoid the EU or U.K. imposing its own GCC on that group and therefore all the U.S. insurers within the group.”
The New York legislation, introduced by Sen. Neil D. Breslin (D – Albany), chair of the Senate Insurance Committee, is similar to the Model Act GCC amendments of 2020 in that it introduces the GCC concept and protocols into the existing holding company regulatory framework. However, the New York bill goes further than the Model Act in certain ways. For instance, the Model Act exempts certain categories of parent companies from GCC requirements, such as holding companies located in “reciprocal” jurisdictions (for purposes of the covered agreements). The Model Act also allows the regulator to exempt others. The New York legislation would not categorically exempt any type of company from GCC requirements. The Superintendent would, however, be authorized to exempt holding companies under criteria to be issued by regulation.
The bill would