IAIS Seeks Comment on Updated Basic Capital Requirements Plan
July 10, 2014 by Jeff Jeffrey
WASHINGTON – The International Association of Insurance Supervisors is providing more clarity on what its proposed basic capital requirements for global systemically important insurers may ultimately look like.
The IAIS released updated details about how the basic capital requirements will be calculated in a July 9 announcement.
The proposal released marks the second time the IAIS has asked the public to weigh in on the details of the organization’s basic capital requirements plan. The IAIS is developing the capital requirements under direction from the G-20’s Financial Stability Board.
The IAIS said in a statement it intends to present the final version of the capital requirements at the G-20 summit in November. The public has until Aug. 8 to comment on the updated proposal.
In the latest version, the IAIS proposed the amount of capital G-SIIs would be required to hold would be calculated on a consolidated group-wide basis, with all holding companies, insurance legal entities, banking legal entities and any other service companies included in the consolidation.
Currently, there are nine companies set to be designated as G-SIIs. The list includes American International Group Inc.; Metropolitan Life Insurance Co. Inc.; Prudential Financial Inc.; and Prudential plc (Best’s News Service, Oct. 30, 2013). The FSB has also given G-SII designations Allianz SE; Assicurazioni Generali S.p.A.; Aviva plc; Axa S.A.; and Ping An Insurance Company of China Ltd. The FSB has indicated that more companies could be added to the list.
The basic capital requirements are designed to reflect major categories of risks impacting the businesses of G-SIIs and to account for on- and off-balance-sheet exposures, the IAIS said.
As a result, the IAIS said the basic capital requirements will be constructed to take into account three components: an insurance component; a banking component that applies the Basel III leverage ratio or risk weights; and a component for other non-insurance activities (financial and material non-financial) not currently subject to regulatory capital requirements.
Fifteen factors will be used to aid in the calculated basic capital requirements for different insurance segments, which include traditional life insurance, traditional non-life insurance, non-traditional insurance and assets, the IAIS said.
The IAIS said the basic capital requirements currently under development are part of a three-stage process to enact risk-based, group-wide global insurance capital standards.
According to the IAIS, the second step is the development of higher loss absorbency requirements for G-SIIs, which are due to be completed by the end of 2015.
The final step is to develop risk-based group-wide global insurance capital standard, which are expected to be completed by the end of 2016 and applied to so-called internationally active insurance groups from 2019.
Representatives of the insurance industry have questioned the need for a global capital standard, arguing that it could create an unlevel playing field for companies with a global business. The Property Casualty Insurers Association of America and the National Association of Mutual Insurance Companies have called on Congress to hold hearings on the effort to impose a global capital standard on insurance companies despite objections from state regulators in the United States.
PCI said it is still reviewing the latest draft.
In May, IAIS Secretary General Yoshi Kawai faced tough questions during a conference in Washington, D.C., about what many have seen as a lack of transparency in the process to create new global capital standards for insurance companies (Best’s News Service, May 14, 2014).
Kawai was pressed about the level of transparency at the IAIS while participating in a panel discussion during the National Association of Insurance Commissioners’ International Insurance Forum.
State regulators, insurance executives and industry representatives told Kawai the IAIS needs to hold more of its debates in public to ensure the industry’s concerns are included, given the capital standards’ potential to upset the insurance marketplace.
Kawai responded that the IAIS is seeking to balance transparency with the need to ensure the organization’s members can fully debate proposals.
(By Jeff Jeffrey, Washington Bureau manager: jeff.jeffrey@ambest.com)
