Other parts of this series:
- North American insurers face international capital standards
- Several tough challenges for too-big-to-fail insurers
- Potential changes in capital standards could affect largest, international carriers
- Some capital standards deadlines missed, others are ambitious
- How insurers should respond to international capital standards
Seven years after the financial crisis churned through economies worldwide, carriers in North America as well as globally face a bumpy wake of international insurance capital standards. The standards, drafted by the International Association of Insurance Supervisors (IAIS), are designed to create a framework allowing for more effective cross-jurisdictional regulatory supervision.
As Accenture details in its report, “The Rise of Global Standards and How Insurers Can Comply,” current drafts of these standards give us a good idea about their potential impact on insurers. Complying with them likely will prove challenging for carriers. In this blog series, I will outline the standards, the challenges they pose for insurers, deadlines and how insurers should respond.
This time, I’ll review the regulations and which insurers they apply to.
One standard applies only to a group of nine insurers in the United States, Europe and China that the G20’s Financial Stability Board has labeled Global Systemically Important Insurers (G-SIIs). G-SII policy measures are designed to address the systemic risks that only these “too-big-to-fail” carriers pose to the financial system. They will include: backstop capital obligations—such as the Basic Capital Requirement (BCR) and the Higher Loss Absorption (HLA) figure—that will be calculated at the group level in an effort to prevent insurers from failing or to mitigate a failure’s impact on the financial system; enhanced supervision; and other requirements intended to prevent a failure from creating severe systemic disruption.
IAIS also produced an internationally coherent framework—ComFrame—for the supervision of large, complex, Internationally Active Insurance Groups (IAIGs), regardless of whether they have been designated as G-SIIs. Though discussions may have lost some steam recently, it also contains a wide array of requirements: a global Insurance Capital Standard (ICS) different from those applied to G-SIIs, as well as recovery and resolution plans. Subject to IAIS guidance, national regulators will determine which of the insurance groups they supervise will qualify as IAIGs. We estimate the number at more than 40.
The Insurance Core Principles (ICP) make up the third leg of the IAIS international regulatory stool. These standards and guidance apply to all insurers and insurance groups in North America and around the globe, regardless of their size, international activities or systemic importance. They are structured to allow a wide range of regulatory approaches and supervisory processes to suit different markets and the insurers operating within them. G-SIIs would be subject to all three regulations, while IAIGs will have to comply with both ComFrame and the ICP.
Beyond IAIS policymaking efforts, there is a trend in the global insurance market toward more risk-sensitive insurance supervisory regimes that tend to address group risk and capital issues in close linkage with entity-level supervision. The progressive extension of these regimes has important consequences on the global marketplace. An example is the ongoing negotiations for Solvency II ‘equivalent jurisdictions’ in non-EU countries.
To learn more about the study, read “The Rise of Global Standards and How Insurers Can Comply.”
Next time: Measures likely to require particular attention and greater investment from G-SIIs.