encouraged by the financial condition (e) …...march 2, 2016 mr. david altmaier director, property...
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American Council of Life Insurers American Insurance Association 101 Constitution Avenue, NW, Washington, DC 20001-2133 2101 L Street, NW, Washington, DC 20037 (202) 624-2340 t (866) 953-4083 f [email protected] (202) 828-7175 t [email protected] www.acli.com www.aiadc.org
March 2, 2016
Mr. David Altmaier
Director, Property & Casualty Financial Oversight
Florida Office of Insurance Regulation
Chairman, Group Capital Calculation (E) Working Group
Via email to [email protected]
Dear Mr. Altmaier:
The attached document is submitted on behalf of the American Council of Life Insurers
(ACLI) and the American Insurance Association (AIA). The ACLI is a Washington, D.C.-based
trade association with 284 member life insurance companies representing more than 90
percent of U.S. industry assets and premiums, and operating in the United States and
abroad. The AIA is the leading U.S. property-casualty insurance trade organization,
representing more than 325 insurers that write more than $127 billion in premiums each
year. Both the ACLI & AIA appreciate the opportunity to offer our input to the Group Capital
Calculation (E) Working Group.
The member companies of the ACLI and AIA play a vital role in our economy and provide
critical financial and insurance protection to American consumers. Any new state-based
approach to assessing the solvency of insurers—and their ability to provide economic
security to millions of Americans — must be bench-marked against the current long-standing,
well-tested approach. The process for constructing any new approach must be deliberate,
and it must incorporate ample impact analyses, field testing, and feedback channels.
We are encouraged by the Financial Condition (E) Committee’s decision to explore an RBC
aggregation approach to a state-based group capital calculation. This approach has deep
roots in the existing state risk-based capital system and is consistent with our advocacy in
other domestic and international fora. The attached document summarizes our thinking to
date on an RBC aggregation approach.
We believe that state regulators, their staffs, and NAIC staff must continue to work with and
within Team USA as strong and active partners. Every effort must be made to ensure that
any new state-based group capital assessment not duplicate or conflict with the Federal
Reserve Board’s approach and that U.S. capital standards not be eclipsed by the
development of international capital standards proceeding at a faster pace. Any other
outcome would be disastrous for our industries.
Attachment Two
We appreciate the transparency of NAIC process on this topic, look forward to further
discussion, and anticipate remaining actively engaged as the deliberations proceed.
Very truly yours,
Carolyn Cobb J. Stephen Zielezienski
Vice President & Chief Counsel, Senior Vice President & General Counsel
Reinsurance & International Policy American Insurance Association
American Council of Life Insurers
CC: Superintendent Eric Cioppa (Maine), Chairman, NAIC Financial Condition (E) Committee
Dan Daveline, Director, Financial Regulatory Services, NAIC
Attachment Two
11
© A
MER
ICAN
CO
UNCI
L O
F LI
FE IN
SUR
ERS
101
Cons
titut
ion
Ave.
, NW
, Was
hing
ton,
DC
2000
1-21
33
An
Agg
rega
tion
& C
alib
ratio
n A
ppro
ach
to In
sure
r Gro
up C
apita
l
Mar
ch 2
, 20
16
Attachment Two
22
Sub
mis
sion
Out
line
B
ackg
roun
d of
the
Agg
rega
tion
and
Cal
ibra
tion
App
roac
h
O
verv
iew
of t
he A
ggre
gatio
n an
d C
alib
ratio
n A
ppro
ach
K
ey Is
sues
Add
ress
ed in
the
Agg
rega
tion
and
Cal
ibra
tion
App
roac
h
P
olic
y Is
sues
Rai
sed
by th
e N
AIC
Gro
up C
apita
l Cal
cula
tion
Pro
ject
Attachment Two
Bac
kgro
und
of th
e A
ggre
gatio
n an
d C
alib
ratio
n A
ppro
ach
Attachment Two
44
Bac
kgro
und
For t
he p
ast y
ear,
the
indu
stry
has
bee
n co
nstru
ctiv
ely
enga
ged
to d
evel
op a
n
appr
oach
to a
gro
up c
apita
l cal
cula
tion
base
d on
exi
stin
g st
atut
ory
regi
mes
.
Term
ed A
ggre
gatio
n an
d C
alib
ratio
n (A
&C
), th
e ap
proa
ch p
rovi
des
a fra
mew
ork
for a
ggre
gatin
g av
aila
ble
capi
tal a
nd re
quire
d ca
pita
l acr
oss
an in
sura
nce
grou
p’s
entit
ies,
with
adj
ustm
ents
as
appr
opria
te, t
o pr
oduc
e a
grou
p-w
ide
solv
ency
ratio
.
The
Life
and
P&
C in
dust
ries
are
repr
esen
ted
in th
e ef
fort,
with
coo
rdin
atio
n th
roug
h A
CLI
in p
artn
ersh
ip w
ith th
e A
mer
ican
Insu
ranc
e A
ssoc
iatio
n (A
IA).
Attachment Two
Ove
rvie
w o
f the
Agg
rega
tion
and
Cal
ibra
tion
App
roac
h
Attachment Two
66
Ove
rvie
w o
f the
Agg
rega
tion
and
Cal
ibra
tion
App
roac
hB
uild
ing
Blo
cks
The
appr
oach
con
sist
s of
two
maj
or b
uild
ing
bloc
ks:
Agg
rega
tion
of lo
cal s
olve
ncy
mea
sure
s an
d C
alib
ratio
nac
ross
mea
sure
s to
ens
ure
com
para
bilit
y
A G
roup
Sol
venc
y R
atio
mea
sure
s th
e ca
pita
l ade
quac
y of
the
grou
p, re
flect
ing
adju
stm
ents
an
d sc
alin
g as
app
ropr
iate
•A
ggre
gate
s lo
cal a
vaila
ble
and
requ
ired
capi
tal t
o de
term
ine
a gr
oup
solv
ency
ratio
, lev
erag
ing
exis
ting
regu
lato
ry s
olve
ncy
rule
s an
d au
dite
d fin
anci
als,
and
spe
cify
ing
a su
itabl
e re
gim
e w
here
nec
essa
ry
•R
efle
cts
the
grou
p’s
activ
ities
and
risk
s, in
clud
ing
thos
e no
t cap
ture
d by
in
sura
nce
regu
lato
ry s
tand
ards
•A
pplie
s ad
just
men
ts w
here
nee
ded
to a
ppro
pria
tely
agg
rega
te a
cros
s th
e gr
oup’
s en
titie
s an
d ac
tiviti
es
•A
pplie
s sc
alar
s ac
ross
regi
mes
to p
rodu
ce c
ompa
rabl
e m
easu
res
of ri
sk
whi
ch c
an b
e ag
greg
ated
into
a g
roup
-wid
e m
easu
re
Agg
rega
tion
Cal
ibra
tion
Attachment Two
77
Ove
rvie
w o
f the
Agg
rega
tion
and
Cal
ibra
tion
App
roac
hA
&C
is a
prin
cipl
es-b
ased
app
roac
h
The
A&
C a
ppro
ach
is g
uide
d by
ove
rarc
hing
prin
cipl
es w
hich
ens
ure
com
para
bilit
y an
d tr
ansp
aren
cy,
rega
rdle
ss o
f a g
roup
’s s
truc
ture
, act
iviti
es o
r reg
imes
Agg
rega
tion
Cal
ibra
tion
Gui
ding
prin
cipl
es d
icta
te th
e id
entif
icat
ion
of re
gim
es a
nd
adju
stm
ents
in o
rder
to e
nsur
e ap
prop
riate
refle
ctio
n of
cap
ital
acro
ss th
e gr
oup
Gui
ding
prin
cipl
es e
nsur
e co
mpa
rabi
lity
whe
n ag
greg
atin
g ca
pita
l acr
oss
regi
mes
Tran
spar
ency
und
erlie
s al
l asp
ects
of t
he fr
amew
ork
Attachment Two
88
Ove
rvie
w o
f the
Agg
rega
tion
and
Cal
ibra
tion
App
roac
hA
&C
’s G
uidi
ng P
rinci
ples
Prin
cipl
eA
pplic
atio
n
1R
efle
cts
appr
opria
te re
gim
e –
insu
ranc
e vs
. non
-insu
ranc
e •
All e
ntiti
es d
iffer
entia
ted
betw
een
insu
ranc
e an
d no
n-in
sura
nce
−In
sura
nce
entit
ies
unde
r exi
stin
g so
lven
cy re
gim
e
−N
on-in
sura
nce
entit
ies
unde
r Bas
el II
I if m
ater
ial
2M
inim
al a
djus
tmen
ts to
ex
istin
g re
gim
es•
Exis
ting
solv
ency
mea
sure
s sh
ould
be
pres
erve
d w
here
app
ropr
iate
•Ap
ply
regi
me
at h
ighe
st le
vel o
f exi
stin
g co
nsol
idat
ion
whe
re a
ppro
pria
te
3In
diffe
rent
to c
orpo
rate
st
ruct
ure
•Th
e lo
catio
n of
an
entit
y w
ithin
the
grou
p st
ruct
ure
shou
ld n
ot im
pact
cap
ital a
t th
e ag
greg
ated
leve
l
•In
tragr
oup
trans
actio
ns s
houl
d no
t im
pact
cap
ital a
t the
agg
rega
ted
leve
l
4C
ompa
rabl
e ac
ross
regi
mes
•Th
e gr
oup
leve
l agg
rega
tion
mus
t ref
lect
com
para
ble
leve
ls o
f ris
k, a
chie
ved
thro
ugh
scal
ing
of c
apita
l rat
ios
acro
ss re
gim
es
5Tr
ansp
aren
t•
The
com
pany
sho
uld
prod
uce:
−A
full
inve
ntor
y of
all
entit
ies
liste
d w
ith c
orre
spon
ding
regi
me
−A
full
inve
ntor
y of
intra
grou
p tra
nsac
tions
and
rela
ted
adju
stm
ents
−A
full
inve
ntor
y of
com
pany
spe
cific
pra
ctic
es (e
.g.,
perm
itted
pra
ctic
es) a
nd
thei
r tre
atm
ent w
ithin
the
fram
ewor
k
The
follo
win
g fiv
e pr
inci
ples
gui
de A
&C
:
Attachment Two
99
Ove
rvie
w o
f the
Agg
rega
tion
and
Cal
ibra
tion
App
roac
hS
teps
in th
e A
&C
app
roac
h
Step
sar
e gu
ided
by
the
five
prin
cipl
es
Qua
ntifi
catio
n an
d A
djus
tmen
tIn
vent
ory
Iden
tific
atio
n an
d A
ssig
nmen
t1
23
Scal
ing
and
Agg
rega
tion
4•
Iden
tify
all l
egal
ent
ities
•Id
entif
y in
sura
nce
and
non-
insu
ranc
e en
titie
s•
For i
nsur
ance
ent
ities
, id
entif
y w
heth
er re
gim
e is
sc
alar
com
patib
le•
For n
on-in
sura
nce
entit
ies,
app
ly B
asel
III a
s ap
prop
riate
•In
vent
ory
of a
ll:−
Ent
ities
and
app
licab
le
regi
mes
−In
tragr
oup
trans
actio
ns
(e.g
., lo
ans
and
guar
ante
es)
−A
ffilia
ted
rein
sura
nce
trans
actio
ns−
Per
mitt
ed a
nd
pres
crib
ed p
ract
ices
•C
alcu
late
ava
ilabl
e an
d re
quire
d ca
pita
l und
er th
e ap
prop
riate
regi
me
•C
alcu
late
adju
stm
ents
for
−M
ater
ial s
cala
r in
com
patib
lere
gim
es−
Intra
grou
ptra
nsac
tions
−A
ffilia
te re
insu
ranc
e−
Per
mitt
ed a
nd
pres
crib
ed p
ract
ices
•A
pply
cro
ss-re
gim
e sc
alar
s fo
r com
para
bilit
y•
Con
side
r div
ersi
ficat
ion
reco
gniti
on in
aggr
egat
ion
Prin
cipl
es w
hich
gui
de th
e pr
oces
s
1R
efle
cts
appr
opria
te
regi
me
2M
inim
al a
djus
tmen
ts
to e
xist
ing
regi
mes
3In
diffe
rent
to
corp
orat
e st
ruct
ure
4C
ompa
rabl
e ac
ross
re
gim
es
5Tr
ansp
aren
t
A
pplic
able
prin
cipl
e
Attachment Two
Key
Issu
es A
ddre
ssed
in th
e A
ggre
gatio
n an
d C
alib
ratio
n A
ppro
ach
Attachment Two
1111
STEP
ISSU
EA
PPR
OA
CH
1. I
dent
ifica
tion
an
d A
ssig
nmen
t
Det
erm
inin
g th
e A
ppro
pria
te R
egim
e
Def
ined
insu
ranc
e or
insu
ranc
e re
late
d en
titie
s
Est
ablis
hed
a m
ater
ialit
y th
resh
old
A
pply
loca
l ins
uran
ce s
olve
ncy
regi
me
(sub
ject
to s
cala
rcom
patib
ility
-se
e be
low
) or B
asel
III f
or n
on in
sura
nce
entit
ies
Uni
vers
e of
Sca
lar
Com
patib
leR
egim
es
Rel
ied
on p
re-e
xist
ing
asse
ssm
ents
by
third
par
ties
(NA
IC, S
olve
ncy
IIE
quiv
alen
ce, I
MF
Insu
ranc
e FS
AP
)•
Cur
rent
ly In
clud
es e
leve
n re
gim
es•
RB
C c
over
s th
e m
ajor
ity o
f ins
uran
ce a
sset
s an
d re
venu
es o
f US
-bas
ed
insu
ranc
e gr
oups
•Sc
alar
com
patib
le re
gim
es c
over
the
maj
ority
of i
nsur
ance
ass
ets
and
reve
nues
of U
S-b
ased
insu
ranc
e gr
oups
Fo
r all
non
scal
ar c
ompa
tible
regi
mes
•If
mat
eria
l, re
stat
e to
a s
cala
r com
patib
le re
gim
e th
at u
ses
a si
mila
r ac
coun
ting
basi
s•
If im
mat
eria
l, tre
at a
s a
subs
idia
ry u
nder
U.S
. RB
C.
2. I
nven
tory
Perm
itted
and
P
resc
ribed
Pra
ctic
es
Cap
tives
trea
ted
unde
r affi
liate
d re
insu
ranc
e tre
atm
ent -
-see
Ste
p 3
belo
w
Res
tate
NY-
dom
icile
d en
titie
s to
NA
IC S
AP
P
rovi
de in
vent
ory
of re
mai
ning
per
mitt
ed a
nd p
resc
ribed
pra
ctic
es to
the
supe
rvis
or•
Shor
tlist
of r
esid
ual p
ract
ices
•Su
perv
isor
to a
pply
com
pany
-spe
cific
adj
ustm
ents
, if n
eede
d
Key
Issu
es A
ddre
ssed
in A
ggre
gatio
n an
d C
alib
ratio
n A
ppro
ach Attachment Two
1212
Key
Issu
es A
ddre
ssed
in A
ggre
gatio
n an
d C
alib
ratio
n A
ppro
ach
STEP
ISSU
EA
PPR
OA
CH
3. Q
uant
ifica
tion
and
Adj
ustm
ent
Affi
liate
d R
eins
uran
ce
If re
insu
red
to a
n af
filia
te w
ithin
a s
cala
rcom
patib
le re
gim
e, n
o ad
just
men
ts.
O
ther
wis
e, re
stat
e as
sets
, lia
bilit
ies
and
requ
ired
capi
tal t
o fra
mew
ork
appl
icab
le to
ce
ding
insu
rer
•If
imm
ater
ial,
treat
as
a su
bsid
iary
und
er c
edin
g in
sure
r’s re
gim
e•
Spe
cial
cas
e fo
r Ter
m, U
L an
d V
A C
aptiv
es –
see
belo
w
Term
Life
/ U
nive
rsal
Li
fe C
aptiv
es
Ass
et V
alua
tion:
Use
SA
P
Liab
ility
Val
uatio
n: S
et re
serv
es to
“Req
uire
d Le
vel o
f Prim
ary
Sec
urity
” und
er A
G 4
8 (r
epla
ce w
ith P
BR
whe
n ad
opte
d)
Req
uire
d C
apita
l: U
se R
BC
A
pplie
s to
Cap
tives
and
non
-Cap
tives
VA
Cap
tives
A
sset
Val
uatio
n: U
se S
AP
Li
abilit
y V
alua
tion:
Res
erve
s se
t at T
AR
(per
SA
P C
3P2)
less
Req
uire
d C
apita
l
Req
uire
d C
apita
l: T
AR
(per
SA
P C
3P2)
x [1
-1.5
%]
•C
reat
es a
sta
ble
boun
dary
bet
wee
n ca
pita
l and
rese
rves
•S
ubje
ct to
NA
IC re
visi
ons
to c
urre
nt fr
amew
ork
•A
pplie
s to
Cap
tives
and
non
-Cap
tives
Adj
ustm
ents
for o
ther
In
tragr
oup
Hol
ding
s an
d Tr
ansa
ctio
ns
A
pplic
atio
nof
5 p
rinci
ples
to m
ake
adju
stm
ents
com
para
ble
to th
ose
requ
ired
in
cons
olid
atio
n
Ens
ures
ther
e is
no
capi
tal i
mpa
ct o
f int
ragr
oup
trans
actio
ns w
hen
capi
tal i
s ag
greg
ated
acr
oss
entit
ies,
e.g
.(1
)In
vest
men
ts in
Affi
liate
s:o
Exc
lude
impa
ct o
f inv
estm
ent i
n af
filia
tes,
incl
udin
g su
rplu
s no
tes,
from
av
aila
ble
and
requ
ired
capi
tal o
f inv
estin
g co
mpa
ny(2
)A
ffilia
te L
oans
:o
Exc
lude
any
cap
ital c
harg
e as
soci
ated
with
the
loan
ass
et fr
om th
e en
tity
prov
idin
g th
e lo
an (a
nd a
djus
t Gro
up c
apita
l to
elim
inat
e an
y di
ffere
nce
in c
arry
ing
valu
es o
f loa
n as
set a
nd o
blig
atio
n)(3
)A
ffilia
te G
uara
ntee
so
Exc
lude
any
cap
ital c
harg
e as
soci
ated
with
the
guar
ante
e
Attachment Two
1313
Key
Issu
es A
ddre
ssed
in A
ggre
gatio
n an
d C
alib
ratio
n A
ppro
ach
STEP
ISSU
EA
PPR
OA
CH
4. S
calin
g an
d
Agg
rega
tion
Reg
ime
Cal
ibra
tion
C
alib
rate
all
regi
mes
to U
S R
BC
•C
alib
ratio
n of
P&
C to
Life
to b
e de
term
ined
U
se re
gula
tory
inte
rven
tion
leve
ls a
nd a
vera
ge c
apita
l rat
ios
for s
imila
r com
pani
es
unde
r diff
eren
t reg
imes
to e
stab
lish
“boo
k-en
ds” t
o sc
alar
S
cala
r equ
als
ratio
of e
xces
s ca
pita
l to
requ
ired
capi
tal i
n ea
ch re
gim
e
Avg.
Cap
ital R
atio
–R
egul
ator
y Tr
igge
rR
egul
ator
y Tr
igge
r
Fore
ign
Reg
ime
Exc
ess
Rat
ioR
BC
Exce
ss R
atio
Div
ersi
ficat
ion
“In
tra-e
ntity
” Div
ersi
ficat
ion
is e
mbe
dded
in lo
cal r
egim
es
Pro
pose
d in
corp
orat
ing
“intra
-gro
up” s
ourc
es o
f div
ersi
ficat
ion
•C
ross
line
of b
usin
ess
(P&
C v
s. L
ife)
•G
eogr
aphi
cal
•C
orre
latio
ns to
be
dete
rmin
ed
Exc
ess
Rat
io =
Sca
lar =
Attachment Two
1414
Pol
icy
Issu
es R
aise
d by
the
NA
IC’s
Gro
up C
apita
l Cal
cula
tion
Pro
ject
We
supp
ort s
tate
regu
lato
rs’ p
artic
ipat
ion
in n
atio
nal a
nd in
tern
atio
nal d
iscu
ssio
ns o
n gr
oup
capi
tal.
We
belie
ve, h
owev
er, t
hat a
sta
te-b
ased
gro
up c
apita
l cal
cula
tion
rais
es a
num
ber o
f po
licy
issu
es w
hich
nee
d to
be
addr
esse
d as
this
pro
ject
mov
es fo
rwar
d –
a dy
nam
ic w
e be
lieve
th
e N
AIC
reco
gniz
es.
Thes
e po
licy
issu
es in
clud
e:
Th
e ne
cess
ity a
nd a
ppro
pria
tene
ss o
f a g
roup
cap
ital c
alcu
latio
n fo
r all
insu
ranc
e gr
oups
;
H
ow w
ould
sta
te re
gula
tors
impl
emen
t & c
oord
inat
e as
sess
men
t of s
uch
a ca
lcul
atio
n;
Th
e ba
sis
and
scop
e of
an
insu
ranc
e co
mm
issi
oner
’s a
utho
rity
to a
dopt
and
act
on
the
ca
lcul
atio
n.
We
belie
ve th
ese
ques
tions
mus
t be
answ
ered
bef
ore
final
dev
elop
men
t and
ado
ptio
n of
an
insu
rer g
roup
cap
ital c
alcu
latio
n by
the
NA
IC.
The
AC
LI a
nd A
IA a
re w
illing
to w
ork
with
the
NA
IC o
n ad
dres
sing
them
in a
con
stru
ctiv
e an
d co
llabo
rativ
e m
anne
r.
Attachment Two
App
endi
x
Attachment Two
1616
The
prov
isio
nal l
ist o
f sca
lar c
ompa
tible
regi
mes
1. F
ranc
e, G
erm
any,
Irel
and
and
UK
are
incl
uded
in th
e N
AIC
list
of q
ualif
ied
juris
dict
ions
; A&
C e
xten
ds s
cala
r com
patib
ility
des
igna
tion
to a
ll co
untri
es c
ompl
iant
with
Sol
venc
y II.
Switz
erla
nd
NA
IC q
ualif
ied;
S
olve
ncy
II eq
Japa
nN
AIC
qua
lifie
d ju
risdi
ctio
n
Scal
ar c
ompa
tible
regi
mes
IMF
asse
ssed
(“O
bser
ved”
or “
Larg
ely
Obs
erve
d”)
Oth
er S
IIju
risdi
ctio
ns n
ot a
sses
sed
–sc
alar
com
patib
le
On
NA
IC li
st o
f qua
lifie
d ju
risdi
ctio
ns
Sol
venc
y II
equi
vale
nt
Glo
bal R
egim
e C
lass
ifica
tion
Scal
ar in
com
patib
le re
gim
es
IMF
asse
ssed
(“P
artia
lly O
bser
ves”
or “
Not
Obs
erve
d”)
No
asse
ssm
ent
Ber
mud
aN
AIC
qua
lifie
d;
Sol
venc
y II
eq
Solv
ency
II1
NA
IC q
ualif
ied
juris
dict
ion Bra
zil
Sol
venc
y II
equi
vale
nt
Mex
ico
Sol
venc
y II
equi
vale
nt
USA
Sol
venc
y II
equi
vale
nt
Aust
ralia
Sol
venc
y II
equi
vale
nt
Can
ada
Sol
venc
y II
equi
vale
nt
Principle 1: Reflects a
ppropriate re
gime
Principle 2: M
inim
al adjustm
ents to
existing regimes
Principle 4: Com
parable across re
gimes
Principle 5: Transpa
rent
Attachment Two
1717
Tota
l bal
ance
she
et re
quire
men
t of a
n ill
ustr
ativ
e in
sure
r
Var
iatio
n in
the
degr
ee o
f acc
ount
ing
cons
erva
tism
exp
lain
s a
larg
e po
rtion
of
diffe
renc
es in
cap
ital r
atio
s ac
ross
sol
venc
y re
gim
es
Bes
t-est
imat
e lia
bilit
y
Req
uire
d ca
pita
l
Con
serv
atis
m
mar
gin
Reg
ime
B
Exce
ss c
apita
l
Reg
ulat
ory
inte
rven
tion
Cap
ital R
atio
180%
As
a re
sult
of d
iffer
ent c
apita
l req
uire
men
ts, i
dent
ical
in
sure
rs in
iden
tical
ly s
tring
ent r
egim
es c
an
none
thel
ess
have
sig
nific
antly
diff
eren
t cap
ital r
atio
s
Bes
t-est
imat
e lia
bilit
y
Req
. Cap
ital
Con
serv
atis
m
mar
gin
Reg
ime
A
Exce
ss c
apita
l
Cap
ital R
atio
500%
Tota
l bal
ance
she
et re
quire
men
t
•Fo
r a g
iven
blo
ck o
f lia
bilit
ies,
two
regi
mes
can
hav
e th
e sa
me
“tota
l bal
ance
she
et re
quire
men
t” bu
t ver
y di
ffere
nt
capi
tal r
equi
rem
ents
•In
cer
tain
regi
mes
–e.
g., U
S R
BC
, a s
igni
fican
t por
tion
of
loss
-abs
orbi
ng c
apac
ity re
side
s in
rese
rves
thro
ugh
the
use
of c
onse
rvat
ive
rese
rvin
g as
sum
ptio
ns1
•O
ther
regi
mes
–e.
g. S
olve
ncy
II –
use
mos
tly b
est-
estim
ate
assu
mpt
ions
and
ther
efor
e re
quire
mor
e ca
pita
l to
affo
rd th
e sa
me
aggr
egat
e lo
ss-a
bsor
bing
cap
acity
1
Principle 1: Reflects a
ppropriate re
gime
Principle 4: Com
parable across re
gimes
Principle 5: Transpa
rent
1. A
dditi
onal
ly, c
erta
in re
gim
es h
ave
mor
e co
nser
vativ
e as
set v
alua
tion
and
adm
issi
bilit
y ru
les
(e.g
., fo
r int
angi
ble
asse
ts)t
han
do o
ther
regi
mes
; the
se d
iffer
ence
s w
ould
als
o co
ntrib
ute
to
diffe
rent
cap
ital r
equi
rem
ents
that
nev
erth
eles
s re
pres
ent s
imila
r req
uire
men
ts o
f the
com
pany
’s g
ener
al fi
nanc
ial h
ealth
.
Illus
trat
ive
Attachment Two
1818
Reg
ulat
ory
trig
ger:
10
0% fo
r bot
h re
gim
es
•U
nder
the
regu
lato
ry tr
igge
r app
roac
h:−
The
insu
rer i
n re
gim
e B
wou
ld h
ave
a si
gnifi
cant
ly
low
er G
SR
than
the
insu
rer i
n re
gim
e A
−Th
is d
iscr
epan
cy m
ay c
reat
e in
cent
ives
and
di
sinc
entiv
es to
writ
e in
cer
tain
juris
dict
ions
−P
oten
tial f
or c
apita
l arb
itrag
e, e
ven
amon
gst s
cala
r co
mpa
tible
regi
mes
(e.g
. Eur
ope
to U
S)
•U
nder
the
oper
atin
g ra
nge
appr
oach
−Th
e sc
alar
is c
alib
rate
d by
com
parin
g 50
0% (r
egim
e A
) to
180%
(reg
ime
B)
−A
s a
resu
lt, a
cap
ital r
atio
at t
he re
gula
tory
trig
ger o
f 10
0% fo
r reg
ime
A w
ould
cor
resp
ond
to a
cap
ital
ratio
of ~
36%
for r
egim
e B
, whi
ch is
muc
h lo
wer
th
an th
e ac
tual
regu
lato
ry tr
igge
r of 1
00%
−Th
is m
ay b
e in
cons
iste
nt w
ith a
ctua
l ins
urer
failu
re
500%
180%
0%
100%
200%
300%
400%
500%
600%
Reg
ime
AR
egim
e B
Local capital ratios
Principle 1: Reflects a
ppropriate re
gime
Principle 4: Com
parable across re
gimes
Principle 5: Transpa
rent
Illus
trat
ive
Cal
ibra
tion
appr
oach
es th
at a
re b
ased
on
a si
ngle
poi
nt o
f com
paris
on d
o no
t ca
ptur
e th
e im
pact
of a
ccou
ntin
g co
nser
vatis
m
Aver
age
oper
atin
g ra
tios
of s
ampl
e re
gim
es
As
a re
sult,
sca
lars
cal
ibra
ted
unde
r the
two
appr
oach
es c
an p
rodu
ce in
appr
opria
te o
utco
mes
Attachment Two
1919
Ava
ilabl
e ca
pita
l
Pro
posa
l rec
ogni
zes
diffe
rent
acc
ount
ing
cons
erva
tism
leve
ls to
equ
ilibr
ate
capi
tal r
equi
rem
ents
Bes
t-est
imat
e lia
bilit
y
Con
serv
atis
m
mar
gin
Reg
ime
B
Exce
ss c
apita
l
Bes
t-est
imat
e lia
bilit
y
Req
. Cap
ital
Con
serv
atis
m
mar
gin
Reg
ime
A
Exce
ss c
apita
l
Req
. Cap
ital
Equi
libra
te c
apita
l re
quire
men
ts to
ac
coun
t for
acc
ount
ing
cons
erva
tism
1
1
Adj
ust a
vaila
ble
capi
tal t
o re
flect
new
se
para
tion
betw
een
capi
tal a
nd re
serv
es
2R
egul
ator
y in
terv
entio
n
Tota
l bal
ance
she
et re
quire
men
t of a
n ill
ustr
ativ
e in
sure
r in
two
regi
mes
Principle 1: Reflects a
ppropriate re
gime
Principle 4: Com
parable across re
gimes
Principle 5: Transpa
rent
1. A
lso
acco
unts
for d
iffer
ence
s in
ass
et v
alua
tion
and
adm
issi
bilit
y ru
les
(e.g
., fo
r int
angi
ble
asse
ts).
For i
nsta
nce,
ass
ets
adm
itted
und
er R
egim
e B
but
not
Reg
ime
A m
ay b
e co
nsid
ered
a
“con
tra-li
abili
ty” i
n R
egim
e B
that
is s
ubse
quen
tly re
mov
ed w
hen
rais
ing
Reg
ime
B’s
con
serv
atis
m m
argi
n to
equ
ilibr
ate
Reg
ime
B a
nd R
egim
e A
.
Illus
trat
ive
The
tota
l bal
ance
she
et-b
ased
app
roac
h al
igns
wel
l with
IC
P 17
–i.e
., a
maj
or c
riter
ion
for s
cala
r com
patib
ility
“The
sup
ervi
sor r
equi
res
that
a to
tal b
alan
ce s
heet
ap
proa
chis
use
d in
the
asse
ssm
ent o
f sol
venc
y to
re
cogn
ize
the
inte
rdep
ende
nce
betw
een
asse
ts, l
iabi
litie
s,
regu
lato
ry c
apita
l req
uire
men
ts a
nd c
apita
l res
ourc
es …
”
−IC
P 1
7.1
Attachment Two
2020
Tota
l bal
ance
she
et c
alib
ratio
n ap
proa
ch d
raw
s up
on re
gula
tory
trig
gers
and
av
erag
e op
erat
ing
ratio
s to
det
erm
ine
the
scal
ar v
alue
s
Bes
t-est
imat
e lia
bilit
y
Con
serv
atis
m
mar
gin
Reg
ime
B
Exce
ss c
apita
l
Bes
t-est
imat
e lia
bilit
y
Req
. Cap
ital
Con
serv
atis
m
mar
gin
Reg
ime
A
Exce
ss c
apita
l
Req
. Cap
ital
Reg
ulat
ory
inte
rven
tion
180%
500%
80%
of R
equi
red
Cap
ital B
400%
of R
equi
red
Cap
ital A
Ave
rage
ratio
Exce
ss ra
tio
“Exc
ess
capi
tal r
atio
” ca
libra
tion
Principle 1: Reflects a
ppropriate re
gime
Principle 4: Com
parable across re
gimes
Principle 5: Transpa
rent
1. C
aptu
res
the
full
rang
e of
bal
ance
she
et d
iffer
ence
s ac
ross
regi
mes
, inc
ludi
ng a
sset
adm
issi
bilit
y, re
serv
ing
stan
dard
s, c
apita
l req
uire
men
ts, a
nd ta
x tre
atm
ent o
f res
erve
s vs
. cap
ital
2. T
hese
com
pani
es c
an b
e id
entif
ied
eith
er th
roug
h cr
edit/
finan
cial
stre
ngth
ratin
gs o
r via
oth
er m
etric
s –
e.g.
, tot
al a
sset
s, to
tal r
even
ue –
in c
ombi
natio
n w
ith li
nes
of b
usin
ess.
Illus
trat
ive
App
ly
adju
stm
ent t
o bo
th re
quire
d an
d av
aila
ble
capi
tal
•Measurin
g capital req
uiremen
ts fo
r com
mon
risks in each
regime wou
ld provide
the “purest” way to
calibrate scalars
1
‐Define stylize
d insurers with
represen
tative po
rtfolios at a
targeted
high level of capita
lization
‐Calculate available & re
quire
d capital in regimes of interest
•While re
gulators m
ay decide to und
ertake su
ch an exercise in
the future, an “excess capital ratio” approach can
serve as a
reason
able proxy in th
e interim
Across re
gimes, ide
ntify
the capital trig
ger a
t which
regulators m
anda
te sim
ilar a
ctions
•Assumes th
at re
gulators have sim
ilar total balance
sheet req
uiremen
ts at the
regulatory trigger
Measure average cap
ital ratios for sim
ilar com
panies
2
unde
r each regime
•Assumes th
at similar com
panies hold sim
ilar
levels of assets relative to th
eir liabilities and risks
Calculate the ratio
of e
xcess c
apita
l to requ
ired
1 2 3Av
g. capita
l ratio ‐ Regulatory trigger
Excess Ratio =
Regulatory trigger
Attachment Two
2121
Var
iabl
e an
nuity
requ
ired
capi
tal –
for b
oth
capt
ives
and
non
-cap
tives
Pro
pose
d ap
proa
ch s
tabi
lizes
the
divi
sion
bet
wee
n re
serv
es a
nd c
apita
l
Res
erve
s
(100
% −
[X]%
) of T
AR
Res
erve
s
Req
uire
d C
apita
l
Tota
l Ass
et R
equi
rem
ent
Cal
cula
tion
is u
ncha
nged
from
the
curr
ent s
tatu
tory
fram
ewor
k•
Mai
ntai
ns th
e sp
irit o
f the
cur
rent
st
atut
ory
fram
ewor
k –
i.e.,
min
imum
tota
l fu
ndin
g re
quire
men
t
•In
clud
es c
ash
surr
ende
r val
ue a
nd
rese
rves
/cap
ital f
or g
uara
ntee
s
Rec
ogni
zing
the
NA
IC’s
wor
k on
VA
rese
rvin
g an
d ca
pita
l req
uire
men
ts, w
e in
tend
this
app
roac
h to
be
an
inte
rim s
olut
ion
pend
ing
any
NA
IC re
visi
ons
to th
e st
atut
ory
fram
ewor
k
Req
uire
d ca
pita
l
[X]%
of T
AR
•Th
e ap
proa
ch w
ould
app
ly to
bot
h ca
ptiv
es a
nd
non-
capt
ives
to e
nsur
e co
nsis
tenc
y
•[X
]% w
ould
be
a pr
e-ca
libra
ted
perc
enta
ge th
at
stay
s fix
ed o
ver t
ime
•W
e ex
pect
that
[X]%
sho
uld
be in
the
rang
e of
1-
1.5%
; fur
ther
wor
k is
nee
ded
to d
efin
e th
e ca
libra
tion
Principle 1: Reflects a
ppropriate re
gime
Principle 2: M
inim
al adjustm
ents to
existing regimes
Principle 3: Indiffe
rent to
corpo
rate structure
Principle 4: Com
parable across re
gimes
Principle 5: Transpa
rent
Attachment Two