Insurance regulation in a nutshell

ARTICLE III

Solvency Regulation

Section III.1.Solvency Margins

Most states require that an insurer have a minimum capital and surplus in order to be licensed to write any given kind or kinds of insurance. For example, in New York, a domestic stock life insurer must have initial capital and surplus of at least $6 million and thereafter maintain a minimum capital of $2 million.⁹ This requirement is the same for the largest and the smallest domestic stock life insurer in New York.
In recognition that fixed capital requirements provide little protection from insurer failure (especially in the case of large insurers), the National Association of Insurance Commissioners (the “NAIC”) adopted its Risk-Based Capital (RBC) For Insurers Model Act in 1993. This Model Act requires that an insurer maintain capital based on the risk inherent in its total business – its assets, liabilities and the amount and kinds of insurance it does. New York enacted a law based on the Model Act for life insurers in 1993 and for property/casualty insurers in 2007.¹⁰ An expanded discussion of risk-based capital is found in Section III.6.

Section III.2.Financial Reporting to Regulators (Unaudited)

One key element of solvency regulation is standard reporting of the financial condition of U.S. insurers to state insurance regulators in states in which they are licensed on an annual and quarterly basis.¹¹
The NAIC prepares standard forms of financial statements for life and property/casualty insurers (and other forms for other kinds of insurers). Each state law generally incorporates by reference the NAIC standard form of financial statement as the form to be filed by insurers licensed in its state.¹² Each annual financial statement requires disclosure of great detail on the business of the insurer including a balance sheet and income statement, statement of cash flows, schedules of premiums, losses and expenses, a listing of every invested asset owned, acquired and sold by the insurer, reporting of all derivative transactions, ceded and assumed reinsurance, loss development (for property/casualty insurers), premiums by state and transactions within the insurer’s holding company system.
The annual statement is due to be filed by the insurer by March 1 for the prior year ended December 31. Quarterly statements are due to be filed by the insurer within 45 days after the end of each of the first three calendar quarters of each year.