Group Capital Calculation Legislation In New York – Insurance Laws and Products & More Latest News Here – Up Jobs

New York Senate Bill S9006, which passed the Senate on 31 May
2022 (‘New York GCC Bill’), is ‘[a]n act to amend the
insurance law, in relation to group capital calculations, liquidity
stress tests, and confidentiality’, which would amend the New
York insurance law, imposing an annual group capital calculation
(GCC) requirement. The legislative session ended on 2 June 2022
without Assembly action on the bill and therefore, when the
legislature reconvenes, the bill must be re-introduced so that it
can be considered further.

For the reasons discussed below, even if the bill were enacted
as presented it may not fully satisfy the Covered Agreements
between the US and the EU and the UK, respectively (the Covered
Agreements), or it may leave New York open to federal pre-emption
if not accompanied by appropriate regulations consistent with the
National Association of Insurance Commissioners’ (NAIC)
Insurance Holding Company Systems Regulatory Act (the Model Act).
If no bill is adopted by the autumn of 2022, New York might also be
in non-compliance with the Covered Agreement and subject to federal
pre-emption.

The Covered Agreements state:

‘Where a Home Party insurer or reinsurer is subject to a
group capital requirement in the territory of the Home Party, the
Host supervisory authority [may] not impose a group capital
requirement or assessment at the level of the worldwide parent
[…]’

(US/EU Covered Agreement, 22 September 2017, section 4(h))

This provision imposes a reciprocity requirement on
jurisdictions that mandate a groupwide capital assessment on a
local insurer. Generally, where the parent of such an insurer is in
another jurisdiction party to the agreement, the local jurisdiction
may not impose such an assessment. The purpose of the provision is
to align the oversight of insurance groups by the various parties
to the respective Covered Agreement. Such alignment prevents
duplicative capital assessments from being required. Under this
framework, only the jurisdiction with domiciliary authority over
the parent company can assert such a requirement.

The Model Act was amended in 2020 to conform to this requirement
of the Covered Agreements. The amendments require a domiciliary
insurer to submit a GCC but exempt from this requirement, as
contemplated by the Covered Agreements:

Unlike the Model Act, the New York GCC Bill would not
specifically exempt from New York’s GCC requirement insurance
holding companies headquartered in a reciprocal jurisdiction under
the Covered Agreements. The New York GCC Bill empowers the
Superintendent of Financial Services (the Superintendent) to
‘exempt a holding company from filing [a GCC] in accordance
with criteria set forth in a regulation’ (New York GCC Bill s
2). This apparently contemplates a regulation that would embody the
reciprocity concepts of the Covered Agreements and the Model Act
amendments.

This raises a concern that, by not specifically exempting
holding companies in reciprocal jurisdictions, the New York GCC
Bill would not satisfy the Covered Agreements. Once the regulation
that contains the reciprocity exemption is issued, this concern
would abate. Nevertheless, the lack of a specific reference in the
legislative text to the reciprocity concept would appear to leave
the New York GCC Bill vulnerable to pre-emption under the federal
statute authorising the Covered Agreements (Dodd-Frank Wall Street
Reform and Consumer Protection Act, 31 U S C ss 313-14).

Any of the following three actions would address this concern:
(1) amend the New York GCC Bill to specifically include a
reciprocity exemption, like the Model Act; (2) amend the New York
GCC Bill to specifically provide that the Superintendent shall
issue regulations to exempt insurers with parent companies in
reciprocal jurisdictions; or (3) couple the New York GCC Bill with
proposed regulations from the Department of Financial Services to
this effect.

Footnote

1. In this context, ‘Reciprocal Jurisdiction’
refers not only to the EU and the UK (ie, the parties to the
respective Covered Agreements) but also to ‘qualified
jurisdictions’ that are entitled to parallel treatment with US
states for credit-for-reinsurance purposes under NAIC guidance and
that ‘recognize and accept’ US regulatory
approaches.

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