Insurance Capital Standard - significant regulatory development for insurers in 2024

Finalisation of the Insurance Capital Standard (ICS), a new global solvency standard for internationally active insurance groups, is likely to be the most significant regulatory development for global insurers in 2024, according to Fitch Ratings.

A public consultation on the ICS as a prescribed capital requirement (PCR) closed on 21 September 2023 and the International Association of Insurance Supervisors (IAIS) is assessing the economic impact of the standard, which is set to take effect by end-2024.

The Insurance Capital Standard (ICS) is being developed as a consolidated group-wide capital standard for IAIGs.

It consists of three components: valuation, qualifying capital resources, and a standard method for the ICS capital requirement. The ICS will be the quantitative component of ComFrame. 

The purpose of the ICS is to create a common language for supervisory discussions of group solvency to enhance global convergence among group capital standards. ICS Version 2.0 for the monitoring period was agreed by the IAIS Executive Committee in November 2019.

The five-year monitoring period is for confidential reporting and discussion in supervisory colleges from the beginning of 2020.

During the monitoring period, ICS results will not be used as a basis for triggering supervisory action. Following the end of the monitoring period, the ICS will be implemented as a group-wide prescribed capital requirement.

The ICS should lead to closer alignment of capital standards for internationally active insurance groups, but it is difficult to create a global standard to which all jurisdictions will agree.

While many jurisdictions have adopted Solvency II-like frameworks, which the ICS broadly mirrors, the US is taking a different approach – an aggregation method to calculate insurance group capital.

The IAIS is evaluating whether this should be considered an outcome-equivalent approach to the ICS.

Fitch does not expect the ICS to impose significantly different regulatory capital requirements given the widespread adoption of Solvency II-like frameworks and the likely flexibility to accommodate national market specificities and even the US aggregation method.

It is therefore likely to be neutral for ratings and will not necessarily lead to fully consistent group capital calculations.

Another important regulatory development for insurers in 2024 will be the introduction of IFRS sustainability disclosures.

The International Sustainability Standards Board finalised the reporting templates for these in June 2023 and insurers will have to disclose the financial materiality of climate-change risks for annual reporting periods from 1 January 2024.

The disclosures will add to the growing influence of ESG considerations on insurers’ underwriting and investment strategies.

The purpose of this public consultation was to solicit feedback from stakeholders on the global Insurance Capital Standard (ICS) ahead of its adoption as a group Prescribed Capital Requirement (PCR) for Internationally Active Insurance Groups (IAIGs) at year-end 2024.

The consultation document presents the ICS as envisaged for implementation (“candidate ICS as a PCR”), subject to any further changes which may be decided upon based on the resolution of comments from this public consultation and the outcome of the 2023 ICS data collection.

This consultation also was aim at collecting input from stakeholders to support the Economic Impact Assessment (EIA) of the ICS that will be conducted by the IAIS.

Yana Keller   by Yana Keller