NAMIC: IAIS Basic Capital Requirements Proposal Could Pose Problems to Industry
July 14, 2014 by Jeff Jeffrey
WASHINGTON – Representatives of the insurance industry are already expressing concern about the International Association of Insurance Supervisors’ proposed basic capital requirements for global systemically important insurers.
The IAIS released an updated version of the proposed basic capital requirements on July 9 and asked the industry to submit comments about potential problems or concerns. This is the second comment period the IAIS has held as it develops the requirements (Best’s News Service, July 9, 2014).
Michelle Rogers, director of financial and regulatory policy for the National Association of Mutual Insurance Companies, said the IAIS proposed timeline for implementing the requirements and the method for calculating minimum capital levels could pose problems for insurers.
However, Rogers said she thought the IAIS proposal “could have been worse.”
She said NAMIC is still analyzing the proposal to see what its impact may be, but the organization was pleased to see that this stage of the IAIS plan is limited to global systemically important insurers. “If the IAIS had moved to apply the requirements to all internationally active insurers at this stage, it would have had a significant impact on how they do business,” Rogers said.
When the IAIS released the proposal on July 10, the organization 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 standards, which are expected to be completed by the end of 2016 and applied to so-called internationally active insurance groups from 2019.
“We think that if the standards are going to be implemented, the IAIS should be wary of moving too quickly. The staged approach helps to avoid that,” Rogers said.
That said, the IAIS has set a relatively short window for when comments may be submitted. The industry and regulators have until Aug. 8 to file comment letters. The IAIS said it hopes to submit a final version of the requirements to the G-20 at its meeting in November.
“There is not a lot of time for the industry to respond and for the IAIS to make any changes,” Rogers said.
NAMIC is also worried about the proposed method used to calculate basic capital levels, Rogers said.
Under the proposal, 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.
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.
Rogers said U.S. insurers would find it difficult to calculate capital levels on a group-wide basis because the state-led regulatory system used domestically regulates each subsidiary individually. Each state oversees subsidiaries domiciled within their borders.
But Rogers added only applying the basic capital requirements to G-SIIs would limit the impact on the industry, at least in the short term.
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 Financial Stability Board 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.
(By Jeff Jeffrey, Washington Bureau manager: jeff.jeffrey@ambest.com)
