• Industry: Financial Services, Insurance
  • Type: Business and industry issue, Regulatory update
  • Date: 3/20/2014

International standards being tested 

International standards tested
Since the financial crisis, the International Association of Insurance Supervisors (IAIS), the Financial Stability Board (FSB) and the International Monetary Fund (IMF) have placed a new emphasis on encouraging and measuring the implementation of international standards.

“Assessments and peer reviews don’t just reveal information about the countries and recommendations for action, they also provide a view into how well the IAIS and other standards are being implemented.”

At the request of the G-20, several mechanisms have been put in place to assess the level of implementation and the effectiveness and clarity of international standards. That thrust has taken many forms and several different assessment programs are now in place including:

  • the Financial Sector Assessment Programs (FSAPs) conducted by the IMF and World Bank;
  • the FSB’s thematic and peer reviews; and
  • the IAIS’ self -assessment and peer review program.

The IMF assesses ICP adoption

Since the IAIS revised its Insurance Core Principles (ICPs) in October 2011, ten FSAPs have been conducted, with Australia, Belgium, Brazil, France, Italy, Japan, Malaysia, Nigeria, Singapore and Spain coming under the microscope.

What the IMF’s FSAP reviews uncovered:

  • Independence of the supervisory authority is critical to the IMF, and in almost all cases, even without evidence of any political interference, the issue of independence was raised;
  • The ability of the supervisor to act quickly to take action against a company was considered a weak spot in many regimes, where multiple layers of authority are required;
  • Corporate governance requirements need to be specific to insurance company functions, including oversight of the actuarial functions;
  • The supervisor must have multiple intervention tools at their disposal, so that there is flexibility along a ladder of intervention;
  • Valuations must be responsive to risk and capital requirements and must be risk sensitive;
  • Supervisors need to develop skills and resources to be able to evaluate enterprise risk systems and controls and to set specific expectations for company ERM programs;
  • Consumer protection in terms of active intervention as to conduct in claims handling and mis-selling was stressed;
  • Group supervision needs to be improved in many cases, but for several jurisdictions this was recognized as a low priority; and
  • Macro-prudential surveillance needs to be improved.

FSB Peer and Thematic Reviews

Recently, the G-20 instructed the FSB to supplement the five-year assessments conducted by the IMF with peer reviews. Three were conducted in 2013 – albeit against the old ICPs – and the reports mainly focused on the success of revisions to the regulatory and supervisory structure.

The FSB is also undertaking thematic peer reviews focusing on certain areas of regulation which, this year, included risk governance. In addition, they have also asked the IAIS to undertake a self-assessment and peer review program regarding the adoption of the ICPs.

Implications for Insurers:

The current pace and change of insurance supervision will likely impact insurers in a number of ways:

  • Greater external oversight and assessment programs will continue to force the reform agenda amongst supervisory authorities;
  • Supervisors are now investing significant resources to increase the current supervisory capabilities. This will apply more scrutiny on groups and their groupwide ERM, capital and governance frameworks;
  • The focus on insurer’s risk management practices will continue particularly in regards to the adequacy of governance and risk culture.
  • Subsidiaries and branches of insurance groups will be under greater pressure to outline how their particular operations are coordinated and managed within the group.

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Evolving Insurance Regulation 2014

Evolving Insurance Regulation 2014
The 2014 Evolving Insurance Regulation report examines current and future regulatory changes impacting the insurers.

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