In the past year – and largely under pressure from the FSB and the G-20 – the IAIS made two critical decisions that will affect the direction of its overall policy and that of the largest insurers:
- That insurance supervisors should exercise comprehensive supervision over the head of the insurance group and
- That, as part of that supervision, there should be a global risk-based insurance capital standard (ICS).
The IAIS also announced last year that it would be streamlining its structure to improve its efficiency and target its resources on the major tasks related to capital, groups, and G-SIIs. Part of the expressed objectives of the reorganization was to enable the IAIS to adapt to “evolving external expectations.”
The IAIS published its final draft framework for consultation in October 2013 for the supervision of International Active Insurance Groups (IAIGs). ComFrame aims to:
- Develop methods of operating group-wide supervision of IAIGs
- Establish a comprehensive framework for supervisors to address group wide activities and risks, such as ERM, capital adequacy and disclosure requirements of IAIGs
- Determine what group-wide ERM policies an IAIG should develop and implement
- Sets out better grounds for supervisory cooperation e.g. identification of the group-wide supervisor and which entities should be in scope
- Foster global convergence e.g. cooperation and interaction between involved supervisors and the requirement for supervisory colleges
- Measures for addressing crisis management and resolution requirements
A number of outstanding issues with ComFrame exist:
- Level of policyholder protection not specified
- Simplistic formula may not allow diversification credit
- No involvement or consideration of reinsurance credit/reinsurers
- Market reaction remains unknown
- Valuation approach remains unclear
Facing continued complaints that references to group-wide supervision in the ICPs were “incomplete, confusing, and subject to varying interpretations” the IAIS has undertaken a revision of the references throughout the core principles, although the focus of group supervision requirements will remain in ICP23. The IAIS will also be working with the IMF to develop guidance for the assessment of group-wide supervision in the FSAPs to avoid the problems encountered with ICP23.
The details of the IAIS Insurance Capital Standards (ICS) and the scope of its application are also still under debate, but in the quantitative field testing in 2014, volunteers were required to provide four balance sheets for comparative purposes:
- The group’s existing economic capital models on a consolidated group-wide basis without modification
- The group’s consolidated statutory balance sheet in its home jurisdiction
- The group’s consolidated balance sheet based on generally accepted accounting principles in the home jurisdiction; and
- Public financial reporting information adjusted based on criteria set by the IAIS.
The IAIS will focus much of its energy for the next three years on its field-testing project to refine these proposals with the tests involving both quantitative and qualitative work.
What is clear already, however, is that the results will have a significant impact on global regulation. Indeed, we expect various jurisdictions to apply the resulting regulations to all insurance groups they supervise; not just those deemed globally active.