Insurance regulators plan global capital standard

The IAIS began developing a comprehensive framework for the supervision of IAIGs, or ComFrame, in 2010. And, it has now decided to develop a new set of capital requirements to include within ComFrame, which already included a capital component within its solvency assessment.

It says that in 2014, it will develop straightforward, backstop capital requirements (BCRs), which are planned to be finalized and ready for implementation by global systemically important insurers in late-2014. These requirements will serve as the foundation for higher loss absorbency requirements for systemically important firms.

“It is undeniable that the business of insurance is global, and global issues demand global responses,” said Peter Braumüller, chair of the IAIS executive committee. “This is why the IAIS, whose members constitute nearly all of the world’s insurance supervisors, has committed to develop and implement the first-ever risk based global insurance capital standard.”

“From the financial crisis, we learned that our global financial regulatory regime should be more robust and comprehensive in scope, and jurisdictions should share a commitment to global standards,” added Michael McRaith, chair of the IAIS technical committee.

Financial industry lobby group, the Institute of International Finance (IIF), issued a statement on the planned capital standard, saying, “In light of the IAIS’ announcement of the project to develop a global insurance capital standard, the IIF reiterates its support for an internationally consistent global regulatory framework in financial services. This framework should ensure a stable and resilient financial system, a global level playing field among internationally active firms and avoid regulatory arbitrage.”

“There are a number of challenging areas that will need to be addressed before a global capital standard can be fully developed. Focus must be paid to ensuring the appropriate risk sensitivity of the framework, acknowledging diversification benefits as well as recognizing the wide variety of business models and institutional and legal frameworks that exist across firms and jurisdictions. This will require a robust exchange of views between the international insurance industry and the regulatory community,” it says.

When the proposed standard was first announced, Frank Swedlove, chair of the Global Federation of Insurance Associations (GFIA) and president of the Canadian Life & Health Insurance Association (CLHIA), said, “The GFIA is committed to working with the IAIS to ensure that the IAIS’s work leads to a standard that is suitable and workable for the industry. It is important that any capital standard reflects the nature of the insurance business and is not simply the adoption of a capital standard from another sector. The GFIA will be seeking more clarity and detail from the IAIS in the coming days about its intentions and workplan.”