b'INSURANCE REGULATORY|US/NAICA Busy Year for the NAICs Group Capital InitiativeFollowing the adoption by the NAIC Executive (EX)currently includes an on-top adjustment for Committee and Plenary of the Group Capitalcertain senior debt and hybrid financial Calculation template and instructions (theGCC )instruments (Debt Allowance) pursuant to in December 2020, the NAIC engaged in significantwhich a credit for such debt and instruments is efforts in 2021 on follow-up matters relating to thisincluded in the GCC available capital, thereby adoption. A trial implementation of the GCC, withincreasing the insurance groups Group Capital data sourced from volunteer insurance groups,Ratio (GCC Ratio). The industrys view is that an took place throughout the year and is expected toeconomic downturn would likely have a negative lead to changes to the GCC. At the same time,impact on the Debt Allowance and therefore significant work was completed by the NAIC toresult in a reduction of the GCC Ratio. For this further the eventual adoption of the GCC as anreason, the industry proposed the inclusion of a accreditation standard and finalize the work of astress scenario in the GCC trial implementation number of other work streams related to the GCC. for the purpose of illustrating the impact of a reduction in the insurance groups capital Potential Changes to the GCC resulting from an economic downturn on the Debt Allowance. This stress scenario was In 2021, the NAIC Group Capital Calculation (E)included in the GCC trial implementation and Working Group (GCC Working Group) conductedsimulated a 30% reduction in the insurance a trial implementation of the adopted GCC, forgroups capital.purposes of discovering any unintended results of the adopted GCC, clarifying the GCC instructionsThe GCC Trial Implementation Memorandum and making any necessary refinements to the GCC.includes a recommendation from NAIC staff to A total of 25 volunteer insurance groups providedthe GCC Working Group that the Debt data for the trial implementation. As anticipated byAllowance not be increased in order to address the GCC Working Group, the trial implementationthis concern. However, the GCC Trial resulted in a number of proposed changes to theImplementation Memorandum acknowledges GCC, the most material of which are summarized inthat monetary policy during financial crises may the memorandum from NAIC staff to the GCCcreate an incentive for insurance groups to Working Group dated November8, 2021 (the GCCincrease their debt and suggests that the GCC Trial Implementation Memorandum). Among theWorking Group consider changes to the GCC most important items in the GCC Implementationthat would address this issue more effectively Memorandum are the following: than an increase in the Debt Allowance. One example proposed by the NAIC staff to address No Changes to the Debt Allowance for Now;this issue is to permit the Debt Allowance to be Future Modifications Possible. The GCCincreased by 10% as a result of the Federal 94|Global Insurance Industry Year in Review 2021'