What is the New Group Capital Calculation Regulation?

Some of you may have already completed your first round of the submission for the group capital calculation (GCC) process. More than 20 states required a submission at the end of 2022, due to their lead state approving the regulation. Of the states that did approve, there were varying due dates for submission – some will even be after the publishing of this blog.

However, others may have little, if any, knowledge of the GCC process. Some of your lead states have not approved the regulation at this point, or you may not be at all involved with the GCC process at all.

A little background

Those of you familiar with risk-based capital (RBC) for insurance companies can think of GCC as a somewhat-similar exercise for holding companies that have insurance companies in their holding company structure. This is a statutory regulation that looks at the capital position of different entities in a holding company, and also attempts to determine the appropriate level of capital the holding company should have to be considered sufficiently capitalized.

Much like RBC, a ratio will be determined by analyzing the holding company’s capital vs. the amount of desired capital. The greater the ratio, the better capitalized the holding company.

We all know this is an exercise that will be using conservative assumptions and methodologies as it is a statutory regulation. The regulators want to make sure that insurance companies are well-capitalized and prepared to pay their claims. The policyholder who has been paying premiums should be confident that when it is time for a claim, the company is solid and will pay the claim.

The GCC builds on the RBC by looking at other non-insurance entities in holding companies’ structures that could negatively impact the insurance companies’ claims-paying abilities.

Those of you in the industry in 2008 undoubtedly remember the tense atmosphere caused by the extreme financial conditions of the time. I know I do.

The idea of GCC started being formulated in response to the financial crisis of 2008 and the very real possibility that non-insurance entities could have a substantial negative impact on insurance companies during times of stress.

It was a long time until some states went live with GCC for year-end 2022, but it is now a regulation for many states, and will surely be approved by many more over the next few years.

How Sovos can help

Sovos Booke has two GCC courses that are now available. We have a shorter, one-and-a-half-hour course that introduces GCC and goes into many phases of GCC. We also have a four-hour course that goes into much more detail concerning the GCC process. These classes will take place mostly towards the end of the year as we approach December 31, 2023.

I would love to see any of you in either of those classes!

I also will be conducting a GCC class at our Sovos Summit that starts September 18 in Austin. The GCC class will take place on Tuesday, September 19. In addition to discussing GCC, I am hoping to have a panel discussion for about an hour of that seminar where we will be able to hear from each other and discuss some of the issues that arose for holding companies that actually did the filing for year-end 2022.

I am looking for friends and colleagues in the insurance industry who were involved in the GCC filing for year- end 2022 and will be attending our summit in Austin. If this description applies to you, I sincerely hope you will be interested in participating in this panel discussion. I’m hoping that three or four individuals will share their experiences with the rest of us.

It’s your shot at taking the stage and sharing your experiences with GCC, helping your fellow insurance financial experts as they navigate the process.  If you are interested in participating, or would simply like more information, please drop me an email at kent.quam@sovos.com.

This is a new regulation that will surely evolve over time as more states approve, and more holding companies make their submissions. Hopefully the opportunities discussed above will start you down the path of being an expert in the GCC process.