The International Association of Insurance Supervisors executive committee has approved a approved the final version of the global Insurance Capital Standard for adoption by IAIS members. The U.S.-developed aggregation method was recognized as a viable basis for implementing this standard.
Updating the capital standard was a key focus for the organization, as it aimed to create a unified framework for regulatory discussions on solvency of internationally active insurers.
Shigeru Ariizumi, chair of the IAIS executive committee, described this agreement as a major milestone. IAIS members are set to vote on adopting the standard during the group’s annual general meeting on Dec. 5 in Cape Town, South Africa.
The finalized standard includes two minor updates: adjustments to credit risk ratings mapping and the determination of noninsurance risks, according to the IAIS (see Insurance Risk Dashboard).
Updating the Capital Standard
Erin Collins, senior vice president of state and policy affairs for the National Association of Mutual Insurance Companies, praised the standard for being principle-based and outcomes-focused.
Collins noted that it accommodates diverse regulatory systems and avoids imposing unnecessary requirements, which could raise costs for policyholders. She highlighted that flexible approaches to regulation account for local capital needs and other supervisory tools effectively.
The IAIS entered the final stage of its comparability study for the aggregation method. The study confirmed that the aggregation method aligns with the new global standard.
The National Association of Insurance Commissioners emphasized the importance of balancing international collaboration with jurisdictional flexibility.
They said this approach ensures effective supervision tailored to the scale and activities of internationally active insurance groups (IAIGs).
The adoption of the standard and recognition of the aggregation method signify a collective effort by global regulators to establish a consistent yet adaptable framework for supervising IAIGs.
Insurance Capital Standard’s History
The International Association of Insurance Supervisors has developed the Insurance Capital Standard (ICS) as a consolidated, group-wide capital requirement for Internationally Active Insurance Groups (IAIGs).
The ICS comprises three key components:
- valuation
- qualifying capital resources
- a standard method for determining the capital requirement
It serves as the quantitative element of the Common Framework for the Supervision of IAIGs (ComFrame), which also includes qualitative aspects like governance and risk management.
The primary objective of the ICS is to establish a globally comparable, risk-based measure of capital adequacy for IAIGs. This standard aims to create a common language for supervisory discussions on group solvency, thereby enhancing global convergence among group capital standards.
In November 2019, the IAIS Executive Committee approved ICS Version 2.0 for a five-year monitoring period, commencing in 2020. During this phase, IAIGs confidentially reported their ICS results to group-wide supervisors, facilitating discussions within supervisory colleges. Importantly, these results were not used as a basis for triggering supervisory actions during the monitoring period.
On November 14, 2024, the IAIS Executive Committee approved the final version of the ICS as a prescribed capital requirement for IAIGs.
This final version incorporated two minor amendments: adjustments to the mapping of credit risk ratings and the determination of non-insurance risk. The IAIS plans to present the ICS for adoption at its Annual General Meeting on December 5, 2024.
In parallel, the IAIS conducted a comparability assessment of the United States’ Aggregation Method (AM) to determine if it provides comparable outcomes to the ICS.
The assessment concluded that the U.S. AM offers a basis for implementing the ICS with comparable outcomes, acknowledging areas where further work is needed to ensure convergence.
The adoption of the ICS represents a significant milestone in global insurance supervision, aiming to promote consistency, comparability, and stability in the international insurance market.
The IAIS continues to work closely with its members to ensure a smooth transition to the ICS and to provide necessary guidance and support throughout the implementation process.
FAQ
The Insurance Capital Standard is a group-wide capital requirement developed by the International Association of Insurance Supervisors (IAIS) for Internationally Active Insurance Groups (IAIGs). It includes valuation, qualifying capital resources, and a standard method for determining capital requirements.
The ICS establishes a globally comparable, risk-based measure of capital adequacy for IAIGs, providing a unified framework for regulatory discussions on solvency. It promotes global convergence among capital standards while allowing flexibility for jurisdictional differences.
The final version, approved on November 14, 2024, includes two amendments: 1) Adjustments to the mapping of credit risk ratings. 2) Updates to the determination of non-insurance risks.
The U.S.-developed Aggregation Method was assessed and recognized as providing comparable outcomes to the ICS. This comparability ensures flexibility while aligning with global standards.
The ICS enhances consistency and stability in global insurance markets. It provides a common language for solvency discussions, fosters collaboration among regulators, and accommodates diverse regulatory systems without imposing unnecessary burdens on insurers or policyholders.
IAIS members will vote on the adoption of the final Insurance Capital Standard during the annual general meeting on December 5, 2024, in Cape Town, South Africa.
The ICS offers a consistent framework tailored to the size and international activities of IAIGs. It ensures effective supervision while accommodating local capital requirements and regulatory systems.
AUTHOR: Shigeru Ariizumi, chair of the IAIS executive committee. Edited by Yana Keller
