Senate Commerce Committee Statement to Senate, No. 4212 — State of New Jersey (December 6, 2021)

Summary

The Senate Commerce Committee of the State of New Jersey, in a statement dated December 6, 2021, reports favorably Senate Bill No. 4212. The bill revises State law on insurance holding company systems to adopt changes the National Association of Insurance Commissioners made to its model act in December 2020. It establishes a Group Capital Calculation for assessing group risks and capital adequacy and a Liquidity Stress Test for assessing group liquidity risks. The statement says state regulators now assess insurance groups but lack the ability to assess the capital position of a group as a whole. The bill requires confidentiality for the calculation, the stress test results and supporting disclosures.

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SENATE COMMERCE COMMITTEE

STATEMENT TO

SENATE, No.
4212

STATE
OF NEW JERSEY

DATED: DECEMBER
6, 2021

The Senate Commerce Committee reports favorably Senate
Bill No. 4212.

This
bill revises current State law on insurance holding company systems to adopt
changes recommended by the National Association of Insurance Commissioners.

In
December 2020, the National Association of Insurance Commissioners (NAIC)
adopted changes to the model Insurance Holding Company System Regulatory Act to
enable the requirement for the Group Capital Calculation (GCC) and the
Liquidity Stress Test (LST).

The
GCC requirement is a financial tool that assists state insurance regulators in
identifying risks that may emanate from a holding company system. The GCC is
intended to comply with the requirements of the “Bilateral Agreement Between
the United States of America and the European Union on Prudential Measures
Regarding Insurance and Reinsurance,” which was signed on Sept. 22, 2017. On
Dec. 18, 2018, a similar covered agreement was signed with the United Kingdom.

The
LST was developed to provide state insurance regulators with insights into a
key macroprudential risk monitored by the Financial Stability Oversight Council
and other jurisdictions internationally. The LST requires the ultimate
controlling person of an insurer to provide the results of a specific year’s
LST to the lead state insurance commissioner.

State
insurance regulators currently perform group analysis on all U.S. insurance
groups, including assessing the risks and financial position of the insurance
holding company system but lack the ability to assess the capital position of
the group, as a whole. The GCC and LST will provide additional insight and
transparency to insurance regulators regarding insurance groups.

This
bill provides additional analytical tools for conducting group-wide
supervision. The bill establishes provisions for a group capital calculation
for assessing group risks and capital adequacy. The bill also establishes a
liquidity stress test for assessing group liquidity risks. The bill requires
confidentiality for the group capital calculation, liquidity stress test results
and supporting disclosures.

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