In 2020, the National Association of Insurance Commissioners (the NAIC) revised the Insurance Holding Company System Regulatory Act (the “Model Law”) and Insurance Holding Company System Model Regulation (the “Model Regulation”) to require that all insurance company holding systems annually report the system’s group capital calculation (GCC) to its lead state commissioner. The 2020 revisions also added liquidity stress test reporting for certain insurers, which we explore further here.1
According to the NAIC, benefits of the new GCC reporting requirements include:
Generally, the 2020 Model Law and Model Regulation revisions require an insurance holding company system to annually file a GCC report with the system’s lead state commissioner as part of its Enterprise Risk Report, also known as the Form F filing, which is a component of the insurance holding company system’s Annual Registration Statement, also known as the Form B filings. See Model Law Section 4(L)(2).
Like the Form F filing, the GCC calculation only needs to be prepared for and submitted to the insurance holding company system’s lead state. See Model Law Section 4(L)(2) (“The report shall be filed with the lead state commissioner of the insurance holding company system….”). Accordingly, if an insurance holding company system’s lead state has not yet adopted the Model Law revisions, the insurance organization is not required to file a GCC report (adoption status of the 2020 Model Law and Model Regulation revisions is discussed below).
The GCC report is required to be filed annually along with the Form F and Form B filings. Form F and Form B filing deadlines vary across states. Of the states that have adopted the 2020 Model Law and Model Regulation revisions, filing dates range from March 31 (Iowa and Pennsylvania) to August 1 (New Hampshire).
There are a few narrow, automatic exemptions from the GCC filing requirement found in the 2020 Model Law revisions (Section 4(L)(2)(a)-(d)), which each of the adopting states to date have enacted. These include:
In addition to the foregoing narrow and automatic exemptions, nine (9) states (discussed below) have adopted the 2020 Model Regulation revisions, which created two additional potential exemptions. The “discretionary” exemption allows a lead state commissioner to exempt an insurance holding company system from future GCC filings if the below criteria are met. See Model Regulation Section 21(A). Alternatively, Model Regulation Section 21(B) permits a lead state commissioner to accept a “limited” GCC filing in lieu of the full GCC report required under the Model Law if the below criteria are met. Both exemptions require that an insurance holding company system:
Notably, the 2020 Model Regulation language only allows a lead state commissioner to grant one of the foregoing exemptions if the insurance holding company system has already made an initial GCC filing to its lead state, which allows the lead state to have the necessary information to determine if a going-forward exemption should apply. See Model Regulation Section 21. That said, of the nine (9) states that have adopted these additional exemptions, three (3) states (Montana, Nebraska and Pennsylvania) allow the lead state commissioner to exempt an insurance holding company system without requiring the insurance organization to first make an initial GCC filing.
Based on tracking done by the NAIC, as of August 1, 2022, twenty-two (22) states have adopted the GCC Model Law revisions, including: Alabama, California, Connecticut, Delaware, Georgia, Iowa, Illinois, Kentucky, Louisiana, Maine, Missouri, Montana, Nebraska, New Hampshire, New Jersey, Nevada, Ohio, Pennsylvania, Rhode Island, Utah, Virginia and Wisconsin. Additionally, there are three states with bills pending that would enact the Model Law revisions: Massachusetts, Michigan and New York.2
Of the 22 jurisdictions that have adopted the 2020 Model Law revisions, nine (9) have also adopted the 2020 Model Regulation revisions: California, Delaware, Illinois, Missouri, Montana, Nebraska, Nevada, Pennsylvania and Wisconsin.
State adoption of the 2020 Model Law and Model Regulation revisions has in part been driven by the Covered Agreements between the U.S. and the European Union (EU) and U.K. on reciprocity in insurance regulation. See Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance (September 22, 2017) and the corresponding agreement between the US and UK (December 18, 2018) (the “Covered Agreements”). U.S. states have until November 7, 2022 to conform their laws to the requirements in the Covered Agreements, or risk having the EU or U.K. impose their own GCC requirements on international insurance holding company systems, including any U.S. insurers in such systems.
Additionally, the NAIC is considering making adoption of the 2022 Model Law and Model Regulation revisions a standard for NAIC accreditation. Although the NAIC does not have formal power to make insurance laws, in order for individual states to receive NAIC accreditation, they must (among other things) adopt certain NAIC model laws and regulations that are included within the NAIC’s standards for accreditation. Generally, states wish to maintain an accredited status because it allows non-domestic states to rely on the accredited domestic state to fulfill a baseline level of financial regulatory oversight, i.e., the states are able to coordinate and rely on each other’s work in monitoring active insurers. Note that the proposal to make the 2020 Model Law and Model Regulation revisions a standard for NAIC accreditation is open for a one-year comment period, which began on January 1, 2022.3 The proposed effective date for making adoption of the 2020 Model Law and Model Regulation revisions a standard for NAIC accreditation is January 1, 2026.
3 Instructions for those interested in submitting comments on the matter can be found at: https://content.naic.org/cmte_f.htm.