The faces of the ICS

In development for well over 10 years, the Insurance Capital Standard (ICS) project has been a monumental effort. The Capital, Solvency and Field Testing Working Group (CSFWG) has been gathering experts from all around the globe to meticulously develop, review and refine the ICS, notably through field testing exercises and other impact studies to provide evidence-based input.

At their October data meeting in Basel, some members of the CSFWG, Paolo Cadoni (Chair - United Kingdom – PRA), Cheryl Liu (Hong Kong Insurance Authority), Gilbert Chin (Vice-Chair - Singapore – MAS), Sandy Shaffer (Vice-Chair - USA – FRB), Peter Chrubasik (Germany – BaFin), Jooste Steynberg (South Africa – PA), Ramon Calderon (USA – NAIC) and Ned Tyrrell (USA – NAIC) shared their insights into the making of the ICS, telling us about their experiences, challenges and the most rewarding aspects of realising this ambitious project.

Introductions

Paolo: I started in 2013, when the Field Testing Task Force was formed (the predecessor of CSFWG). At first, we were a small handful of experts feeling passionately that there was a need for a global capital standard for insurance – we wanted to create something new and unique. There was no international capital standard for insurers and jurisdictional approaches varied significantly. We set an initial deadline in 2016 – which had to be extended but we had given a strong initial effort by then and had already made significant progress.

Ramon: I also joined the project from its inception in 2013 and am part of “Team USA”. A few of the things I worked on included the use of NAIC designations for investments and the recognition of qualifying capital financial instruments. The work on financial instruments proved challenging as we considered the use of structural subordination in the US and how to incorporate this within the approach used for ICS purposes.

Sandy: I joined the project in 2014 as an accounting focused specialist, working on the development of the Generally Accepted Accounting Principles (GAAP+) valuation approach. About three years after that, I was invited to take the role of Vice Chair of CSFWG. GAAP+ was a pretty big thing. There was no such approach to start and it was built from the bottom-up and tested and evaluated using the same rigour and approach as was used for the full ICS. So, it was kind of a mini project within the ICS project.

Gilbert: I became a member of CSFWG in 2014, one year after it was established. In addition to my work as one of the Vice Chairs of CSFWG, I am also involved in several workstreams, particularly on life risk, market adjusted valuation and non-default credit spread risk. The work on the ICS varies and can take up a large portion of my overall workload. It used to be more but after the monitoring period and after the Covid-19 pandemic, due to the home working options, it reduced a bit, but it is still not an insignificant investment of time. I think it is the same for other members of the team.

Peter: When I joined the project in 2015, I was asked to specifically focus on life risks but, over time, I took on a broader role within the policy team. Most of the countries in Europe already had a solvency regime in place when we began developing the ICS and my European colleagues and I strived to introduce into the ICS lessons from what worked well under Solvency II.

Jooste: I have been involved with this project since late 2017. I was particularly interested from an EMDE (Emerging Markets and Developing Economy) perspective, as well as how our local jurisdiction may benefit from being part of the ICS development. In South Africa, we recently implemented a sophisticated capital regime and from the learnings of that project, I was able to contribute to the ICS, which is similar in technical matters, but on a much larger global scale. Additionally, I wanted to speak up for the EMDE contingent of the IAIS membership. This participation was crucial for smaller jurisdictions and companies to ensure that principles considered were relevant to them.

Ned: I’ve been with the ICS project for about nine years. I am a property and casualty (P&C) actuary by background. My original role was to bring the perspective on P&C insurance from the US. Over time my role expanded and now I focus on life, non-life and everything in between. The project has evolved from the early data collection to now moving to implementation. It’s fascinating to see the data in the data room, you have a window into every kind of insurance business model. Few people get to see things at such a high level and in such detail.

Cheryl: I am a life insurance actuary and have been involved in the ICS project since 2021. I joined during the Covid-19 pandemic, so I was only able to meet the team in person in 2023. Even with starting virtually and the long period without in-person meetings, I was quickly integrated in the team and could contribute to bringing the ICS to its current stage. Also, we have built great friendships along the way.

The work of the CSFWG

Paolo: Our first goal at the CSFWG was to try to set a common approach to valuation. The second, was to ensure each jurisdiction had a voice and make each member feel empowered to contribute to the discussions. As Chair, my role is to make sure we hear the views of each member and to mediate when discussions stall. I worked closely with the IAIS Secretariat to then bridge the gap between different views. It can be viewed as an exercise in international diplomacy.

Ned: When we meet, we generally spend one week in the data room in Basel (or “data dungeon” as we call it endearingly). This is the most fun part. Then we have a second week to discuss results, and the design of standards. Each expert has a similar role but brings their own unique perspective both in terms of expertise but also culturally. Insurance is different in every country, and it has taken a lot of work to come to a common understanding. The most difficult part of the journey for us was coming up with something that reflects every member’s needs. I think that’s where we ended up – with a similar method that can be implemented in various ways, according to jurisdictional specificities. It is kind of like if we were in an airplane and we can see the whole world.

Sandy: We spent a lot of time cleaning up large amounts of data to make sure we could use it. Also, different jurisdictions were at different points in their efforts to come up with a solvency standard, which made it a challenge for everyone to bring equally advanced proposals to the table. Another obstacle we encountered, especially relevant for our GAAP+ work, was that the IFRS accounting standards for insurance companies only became effective this year, so it was hard to test that prior to this year.

Cheryl: What I experienced is when we were drafting the technical specifications to the ICS, we needed to come up with solutions. It is similar to finding a one size-fit-all solution. We needed to navigate through the technical landscape of the ICS and consider the interconnection with the Insurance Core Principles (ICPs) and other standards to make it well structured. This was a challenging but also rewarding experience.

As the ICS nears completion

Paolo: The ICS is one of the most rigorously tested standards in the world, thanks to the consistent participation of about 50 volunteer groups over the years. This project represents a significant investment by both the supervisory community and industry.

Jooste: For us, as an EMDE far from the rest of the world, the biggest challenges were always resources – time, money and staff. The project itself was not so challenging technically, as it was similar to what we had implemented. However, it was eye-opening to see how different jurisdictions tackle similar technical issues. We are very supportive to have an IAIS risk-based regime that members, especially EMDE members, can consider when reviewing their own capital regimes.

Peter: We are currently at the final stage of the ICS. It’s my hope and I’m rather optimistic that we will be able to establish the ICS in all of the relevant jurisdictions.

Ramon: A lot of international companies, headquartered in the United States, may do business around the world, via branch offices or subsidiaries and, although challenging, it is useful to have a consensus view on how you deal with certain transactions or financial instruments.

Gilbert: We are doing something that I personally believe will shape the world for years to come. We can be assured that everywhere in the world, the same level of scrutiny is being applied. We can breathe a bit easier for example in Singapore: because when an internationally active insurance group (IAIG) would open a local office here, we can have confidence that their group-wide supervisor, being subjected to the ICS, will apply a certain level of regulatory rigour to the IAIG. It works the other way as well.

Sandy: I’m relatively optimistic about the ICS. It is helpful that different jurisdictions plan to adopt the ICS and will be able to resolve within their own jurisdictions any issues that they might need to adapt to local circumstances.

Personal highlights

Ramon: The most rewarding part of this project were the people and the relationships we formed. We don’t always agree but we learn about each other, and we eat together and break bread and the next day we debate again.

Gilbert: The ICS is a technical standard but what I feel is most rewarding is to be able to meet regulators from around the world. You get to see how they think and hear their side of the story on the issues that are most important to them. We are all regulators, and we have this similar “DNA”, but there are also differences in the way we address different things, how we prioritise them. It is not enough to be working in silo, you need to be able to talk to people and understand what is important to them.

Peter: We met in lots of interesting places around the world, which was a great experience travelling with the group. I generally travel by train to Basel and have probably tested every possible rerouting option between here and Bonn.

Cheryl: As a newer member of the team, I recall stepping into the Botta building data room for the first time and shaking hands with everyone on my first day. They immediately took me onboard both in terms of technical work but also inviting me to join them for dinner and social gatherings. CSFWG is a very technical but very reasonable group of experts who make remarkable contributions from a technical perspective. Hong Kong hosted the CSFWG meeting in May this year, a significant event as it was our last meeting outside of Basel before the planned adoption of the ICS at the end of this year. For that event we had a two-day working group meeting and also a one day regional engagement session, gathering all the insurance groups from the area to come meet our regulators, which is a milestone.

Sandy: The most fun would be our group dinners and activities planned by supervisors around the world. Getting to know people outside of work was enriching. These activities were important in insuring that we were building trust and getting to know each other.

Ned: We have the longest meetings of all IAIS groups and also spend the most time bowling together in the evenings after work. If you take the two together you create a great team dynamic.

Paolo: I started work on this project over a decade ago. Then, we were full of enthusiasm, we wanted to do something right, we wanted to create something to benefit society globally. And that same motivation and drive – it still exists!

About the ICS

The Insurance Capital Standard (ICS) aims to provide a globally comparable risk-based measure of capital adequacy for internationally active insurance groups (IAIGs). It forms the quantitative pillar of the Common Framework for the Supervision of IAIGs (ComFrame), the qualitative pillar of which was adopted in 2019. The ICS is planned for adoption at the end of 2024.

?? Watch our ICS Explained series to learn more.

Thank you to our contributors:

• Paolo Cadoni (United Kingdom – PRA)
• Ramon Calderon (USA – NAIC)
• Gilbert Chin (Singapore – MAS)
• Peter Chrubasik (Germany – BaFin)
• Cheryl Liu (Hong Kong Insurance Authority)
• Sandy Shaffer (USA – FRB)
• Jooste Steynberg (South Africa – PA)
• Ned Tyrrell (USA – NAIC