The International Association of Insurance Supervisors (IAIS) has adopted the first comprehensive global capital standard for insurance supervision, the Insurance Capital Standard (ICS), providing a risk-based measure of capital adequacy for internationally active insurance groups (IAIGs).
Additionally, members endorsed substantial updates to the IAIS Insurance Core Principles (ICPs) and Common Framework for the supervision of internationally active insurance groups (ComFrame). The updates relate to climate risk, recovery and resolution, and valuation and capital adequacy.
“The adoption of the ICS and these updated standards represent a pivotal moment for the global insurance sector,” said Mr Shigeru Ariizumi, IAIS executive committee chair. “Taken together, they will better safeguard the interests of policyholders and enhance financial stability at a time when a strong and resilient insurance sector is critical to tackling pressing societal challenges.”
The Insurance Capital Standard
The ICS provides a globally comparable risk-based measure of capital adequacy for IAIGs and forms the quantitative element of ComFrame. It will serve as a group-wide prescribed capital requirement, which is a solvency control level below which supervisors will intervene on group capital adequacy grounds.
The ICS will help ensure that IAIGs maintain sufficient capital to withstand potential stresses and thereby protect policyholders. It will also provide a consistent and transparent framework for supervisors to evaluate the financial soundness of IAIGs. Currently, there are 59 IAIGs identified by group-wide supervisors from 18 jurisdictions across the globe.
Implementation and assessment of the ICS
IAIS members are committed to implementing IAIS standards, and several members are already taking steps to embed the ICS in their regulatory regimes, across all regions.
As set out in the Aggregation Method comparability assessment report, an Aggregation Method (AM) developed by the US provides a basis for the implementation of the ICS to produce comparable outcomes. The comparability assessment highlighted some areas where work as part of the implementation of the final AM in the US will help ensure convergence, specifically, the treatment of interest rate risk and appropriate timing of supervisory intervention.
The IAIS has set high-level timelines for its plans to assess the comprehensive and consistent implementation of the ICS across jurisdictions. These timelines recognise that it will take some time for jurisdictions to finalise any necessary regulatory and supervisory changes to align with the ICS, taking into account jurisdictional circumstances, and for the IAIS to prepare for implementation assessment.
In 2025, the IAIS will begin developing a detailed ICS assessment methodology.
In 2026, the IAIS will coordinate a baseline self-assessment by IAIS members of their progress in implementing the ICS, which will serve as a baseline for future implementation progress monitoring.
With the aim of starting in 2027, the IAIS will initiate detailed jurisdictional assessments of ICS implementation.
As the final AM will be the US’s implementation of the ICS, the assessment of its implementation will be subject to the same timing as ICS implementation assessments in other jurisdictions and subject to a consistent methodology (including both qualitative and quantitative analysis), assessing whether the jurisdictional implementation at least meets the ICS (ie produces at least the same level of prudence as the ICS and similar triggers of supervisory intervention), whilst also focusing on the AM specificities.
The IAIS will continue to work closely with its member jurisdictions to ensure a smooth transition to the ICS and to provide necessary guidance and support throughout the implementation process.
Updates to Insurance Core Principles and Common Framework for supervision of IAIGs
The IAIS has also finalised a targeted update of its ICPs and certain related standards in ComFrame.
Following a comprehensive update of these global standards in 2019, the current, more targeted update aims to ensure that the ICPs remain relevant and effective in addressing emerging risks and challenges faced by the insurance sector today. The updated areas address three topics and benefitted from extensive consultation with members and stakeholders.
The updated ICPs and ComFrame are available here.
IAIS members are committed to implementing the updated ICP and ComFrame standards from 2025.
Source: asiainsurancereview.com
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