The International Association of Insurance Supervisors (IAIS) is developing a global regulatory capital framework for Global Systemically Important Insurers (G-SIIs) and Internationally Active Insurance Groups (IAIGs).
The aim of these International Capital Standards (ICS) is to converge global regulatory frameworks over time, to protect policyholders and contribute toward financial stability. ICS is a component of ComFrame, which is a set of international supervisory requirements focusing on the effective group-wide supervision of IAIGs. An ICS version 1.0 is scheduled to be released in time for private reporting to supervisors, 2017 onward. Public reporting (ICS 2.0) is likely to not be adopted until the end of 2019. The key components of the ICS are valuation methodology, qualifying capital resources, risk measurement and capital requirements. Since IAIS does not have any executive powers, the adoption of ICS depends on national supervisors.
KPMG supports the purpose of the IAIS to establish a global regulatory capital framework for G-SIIs. However, the current situation of creating reports that adhere to two accounting standards, namely GAAP+ and IFRS, disturbs the possibility to make comprehensions between G-SIIs. To get a global level playing field, it is necessary to choose one reporting method.
The way in which the ICS would be used within the ComFrame and ultimately in practice by national supervisors is yet unknown. This will be the subject of the IAIS consultation in November 2016. Another uncertainty is the interaction between local entity capital requirements (such as Solvency II) and the ICS as a consolidated group-wide capital requirement. European IAIGs and G-SIIs are required to meet the existing SII and the ICS requirements. Although both regimes are risk based, the requirements are not the same.
ICS is likely to have a major impact on capital requirements. Therefore, IAIGs and G-SIIs need to watch the development of ICS closely. They need to determine the impact of the different ICS options on pricing of insurance products. In time, other insurance companies (non-IAIGs/G-SIIs) would also be affected by the ICS. ICS can become an industry best practice. If so, some national supervisors will probably make ICS a standard for their supervision.
Author: Helen Stijnen, director