IAIS Announces Key Next Steps on Capital Standards

Internationally active insurance groups (IAIGs) will want to consider the implications of recent guidance from international insurance regulators on capital standards. These standards mandate the relevant amounts of capital that insurers, together with their affiliates, will be required to hold in order to conduct business.

The International Association of Insurance Supervisors (IAIS) has identified its key projects and activities in connection with its Common Framework for the Supervision of IAIGs (ComFrame), including its insurance capital standard (ICS). These next steps are set forth in the IAIS’ 2023-2024 Roadmap, issued on Jan. 11, which lays out the IAIS’ two-year workplan to address risks and trends in the insurance sector. The Roadmap is oriented around five key high-level goals, one of which is “setting and maintaining globally recognized standards,” including capital standards.

The IAIS writes, “In mid-2023, the IAIS will reach a critical stage on the road to finalising the ICS with the launch of the public consultation on ICS as a [prescribed capital requirement, or PCR]. Feeding into that consultation, the IAIS will agree on any revisions to the ICS to include in the fourth year of the ICS monitoring period [described below] so that data can be collected on what the IAIS considers an ICS fit for implementation as a PCR.”

In the Roadmap, the IAIS lists four key projects or activities concerning the international capital standard.

• Monitoring of the global ICS and related work. During the five-year ICS monitoring period (2020 – 2024), the IAIS is collecting and analyzing confidential data on the ICS on an annual basis from volunteer insurance groups. The IAIS is also considering feedback from colleges of supervisors. It is intended that the ICS will be finalized for implementation as a PCR by the end of this monitoring period.

The guidance states, “In addition to the annual monitoring, in 2023 the IAIS will

• Conduct a public consultation on potential refinements to the ICS and on the potential inclusion of other methods of calculation of the ICS capital requirement (such as internal models) and GAAP plus valuation.
• Conduct an economic impact assessment of the ICS.”

• Assessment of whether the aggregation method (AM) provides comparable outcomes to the ICS. Referring to the National Association of Insurance Commissioners’ recent adoption of a group capital calculation, the IAIS writes, “the U.S. is developing an [Aggregation Method of determining group capital, or AM] as part of its implementation of the ICS. The IAIS will assess whether the AM provides comparable outcomes to the ICS. If so, it will be considered an outcome equivalent approach for implementation of ICS as a PCR.”

The IAIS writes that in 2022 it conducted a consultation on the criteria to be used for the comparability assessment. Final criteria are to be adopted early in 2023, with the comparability assessment starting in the second half of 2023.

• Review of Insurance Core Principles (ICPs) 14 and 17. “The IAIS will consult in 2023 on revisions to ICP 14 (Valuation) and ICP 17 (Capital Adequacy) for the purpose of adopting the revised ICPs by the end of 2024.”
  
  
• Follow-on actions related to the Holistic Framework. The IAIS is developing a “Holistic Framework” for the assessment and mitigation of systemic risk in the insurance sector. “Based on a review of the first years of implementation of the Holistic Framework, the IAIS will consider certain areas within related supervisory material that may benefit from further clarification or further supporting material to support the consistent and comprehensive implementation of the Holistic Framework standards.”