Global Regulatory Insights: Momentum gathers behind global regulatory measures

A global standard of capital is now materialising, but the degree to which it will help insurers remains unclear

July 11, 2016

Measures being developed by the International Association of Insurance Supervisors herald a new era of insurance regulation, one where international standards take centre stage.  Insurers simply cannot afford to ignore the important debates that are currently taking place.

The IAIS has challenging work to do. The risks facing (re)insurers in any particular jurisdiction are a function of idiosyncratic market developments which have come about over decades, even centuries. There are also substantial differences in capital regimes in place across jurisdictions.

These differences arise not from subtle technicalities, but because the fundamental philosophy about solvency and capital can differ between one regime and another. Global acceptance of the IAIS activities will depend on the ability to reconcile these philosophies.

The insurance industry is a major component of the world economy owing to the scale of assets it manages and the essential social and economic role of insurance. Low economic growth and persistently low (in some economies even negative) interest rates look set to continue. Amid these global challenges, regulatory uncertainty threatens to exacerbate an already difficult outlook.

The IAIS has been working on these measures for some time, however it is only recently that it has become clear what the specific implications and capital requirements will likely be.  G-SII’s face holding additional capital to provide “higher loss absorption”  which, based on current plans, will fully kick in by 2019.  In the case of ComFrame, the IAIS is still field testing its Insurance Capital Standard (“ICS”), which looks likely to be based on a market value measure of assets and liabilities, although discussions are ongoing.  The field testing has drawn a lot of attention from insurers, industry bodies and regulators.

Key considerations:

  • A great deal of momentum has been gathering behind global regulatory measures set by the IAIS, including ComFrame and G-SIIs.
  • High level impacts and global measures should supplement not substitute, existing approaches.
  • We can expect further engagement between the IAIS and the industry on the many areas that remain unresolved: classification of risky business, valuation of approach for the ICS and reinsurance and systemic risk.

Related Solutions