The Insurance Capital Standard: International standard setting for the insurance industry
The International Association of Insurance Supervisors (IAIS) has published its second consultation paper on the Insurance Capital Standard (ICS).
In July 2016 the IAIS1 released for consultation its latest working document on the ICS. The ICS is the third of a set of capital standards developed in response to the Financial Stability Board’s (FSB) post-financial crisis agenda to create a “sound capital and supervisory framework for the insurance sector”.
This recent paper is the IAIS’ latest step in its ICS development programme. It follows the first consultation in 2014, comprehensive field testing with approximately 40 volunteer insurance groups and a number of stakeholder engagement meetings. In a press release on 19 July 2016 Victoria Saporta, Chair of the IAIS Executive Committee, said: “The release of this 2016 Consultation Document represents a major step towards making a global risk-based, group-wide capital standard a reality”.
The ICS is a detailed, risk-based capital requirement controlling the level of capital a firm must hold as a percentage of its risk-based assets. It will be applied to Internationally Active Insurance Groups (IAIGs) and Globally Systemically Important Insurers (G-SIIs) from 2019. IAIGs are expected to be identified by national supervisory authorities in 2019 in accordance with the IAIS Common Framework (ComFrame). A list of G-SIIs was first published in 2013 and has been updated annually by the FSB (the current list can be found here).
In this consultation paper the IAIS is seeking input on three key elements:
- Valuation methodologies
- Qualifying capital resources
- A standard method for determining the ICS capital requirement
Once finalised, the ICS is expected to be a common measure of capital adequacy to be implemented by national supervisors taking into account specific market circumstances in their respective jurisdictions. The consultation document states that the ICS should be implemented as a Prescribed Capital Requirement (PCR) - a solvency control level above which the supervisor does not intervene on capital adequacy grounds2. This is intended to provide some flexibility for supervisors to initiate discussions with an IAIG to restore its PCR before taking any further action.
ICS development has been split into two versions: Version 1.0, which is due to be adopted (for confidential reporting) in May/June 2017 and Version 2.0, including a common methodology to achieve comparable outcomes, is expected to be adopted at the IAIS General Meeting in 2019 as part of ComFrame.
Lloyd’s has not been designated a G-SII but may still be required to comply with the ICS once implemented. Lloyd’s Government Policy and Affairs (GPA) team and Lloyd’s America Inc. have participated in a number of ICS stakeholder meetings hosted by the IAIS and will continue to do so to keep abreast of any potential impact to the Lloyd’s market. We will continue to keep market participants informed of developments.
ICS development timeline:
|Aug-Sept 2016||Field testing data due to IAIS|
|19 Oct 2016||ICS consultation closes|
|Mid 2017||Adoption and publication of ICS Version 1.0|
|Mid 2018||Publication of comprehensive ComFrame consultation including ICS Version 2.0 consultation|
|2019||IAIS General Meeting Adoption of ComFrame including ICS Version 2.0|
If you would like more information about the IAIS, ICS or ComFrame, please visit the GPA webpages on Lloyds.com or contact GPA@lloyds.com.
1 IAIS is a voluntary membership organisation of insurance supervisors from over 140 countries. IAIS’s mission is to promote effective and globally consistent insurance supervision through the development of principles and standards for supervision of the insurance sector.
2 IAIS Insurance Core Principle 17.4