Throughout 2012, the International Association of Insurance Supervisors (IAIS) made significant headway in developing a common framework – ComFrame – for the supervision of IAIGs.
In essence, ComFrame proposes an international principles-based code of practice to govern the way IAIGs work.
If adopted, ComFrame will herald the most significant step supervisors have made toward achieving global and group-wide supervision of IAIGs.
While proposing a comprehensive range of qualitative and quantitative requirements for IAIGs, ComFrame also specifies the supervisory process and prerequisites for supervisors to implement the framework.
In the detail
Driven by the need to customize supervision to the complexities of IAIGs, foster convergence, reduce complexity and improve coordination and cooperation, ComFrame aims to:
- develop methods for supervising IAIGs at a group-wide level
- establish a comprehensive framework for supervisors to address group-wide activities and risks
- set better grounds for supervisory cooperation
- foster global convergence.
ComFrame’s current draft comprises:
- Standards – specific actions or requirements that IAIGs and supervisors must meet.
- Parameters – criteria that can be used when ensuring compliance.
- Specifications – details and definitions in terms of specific numbers and/or items.
ComFrame will require an IAIG to identify its head, governing body and senior management – and will bestow on them accountability for their firm’s functions and activities.
Specifically, ComFrame will require an IAIG to:
- take account of its overall risk strategy and appetite
- have a “well-defined and clearly articulated group-wide remuneration policy”
- have effective systems of risk management and internal controls.
Enterprise risk management
ComFrame also calls for an IAIG to put into place a group-wide ERM framework to ensure the firm can calculate its solvency requirements and keep track of group-wide levels of risk; legal status; business strategy and day-to-day operations.
In addition, ComFrame will require an IAIG to regularly perform group-wide Own Risk and Solvency Assessments (ORSAs).
Group structure and strategy
ComFrame also calls for an IAIG to operate in a “sufficiently transparent” way with regard to other supervisors.
In addition, an IAIG will have to consider the legal and management structure and to demonstrate how any risks that arise are being managed. And if any material changes in the legal and management structure occur, ComFrame allocates responsibility for their identification to the group-wide supervisor.
Group capital adequacy assessment
Under ComFrame, an IAIG will have to apply a total balance sheet approach to assess all the risks to which the firm is exposed and calculate its group regulatory capital by assessing and measuring these risks. This aims to ensure that a firm will be able to meet obligations to policyholders.
Implications for insurers
- Firms should begin assessing whether they are likely to be included in the new ComFrame approach and ascertain its most likely impact on them
- These developments mean insurers will have globally consistent risk and capital management programs, resulting in potentially significant efficiencies.
- Increased supervisory focus on group-wide management of risks, effectiveness and performance should mean greater supervisory consistency.
- Closer links to systemic risk issues that could likely influence structure, capital management and finance considerations.
- More demanding supervisory colleges could result in additional governance and reporting requirements across group entities.