From the Desk of the Secretary General – August 2024

By Jonathan Dixon

In June, the IAIS announced its high-level implementation plans for the Insurance Capital Standard (ICS), a project over a decade in the making.

Although our attention is shifting to implementation, there is still work to be done in the final lap of the project ahead of the adoption of the ICS at our Annual General Meeting in Cape Town in December.

The ICS represents a significant evolution in the supervision of Internationally Active Insurance Groups (IAIGs). It provides a globally comparable risk-based measure of IAIG capital adequacy. The ICS forms the quantitative component of the Common Framework for the Supervision of IAIGs (ComFrame), complementing the qualitative component adopted in 2019.

The ICS has been through a rigorous and consultative process of development and monitoring over the last decade, including four public consultations, extensive data gathering and a five-year monitoring period. A global group of IAIS members, IAIGs, interested parties and stakeholders have contributed a vast investment of work hours, technical input and over five million data points, making the ICS one of the most tested quantitative capital standards in the history of financial sector standards.

2024 is the final year of the five-year ICS monitoring period. Following review of the feedback on the 2023 ICS public consultation, the ICS Economic Impact Assessment and results from the 2023 data collection exercise on the candidate ICS as a PCR, the IAIS made targeted changes and clarifications, which were included in the specifications of the final data collection exercise with volunteer groups this year. Data from the volunteer groups was received in July and is currently being analysed and discussed, with a view to identifying any final tweaks to the ICS as a Prescribed Capital Requirement (PCR) ahead of its adoption.

IAIS members are committed to the implementation of IAIS standards, and some members are already taking steps to embed the ICS in their regulatory regimes. For example, next year, Japan will implement a new economic-value solvency ratio (ESR) framework based on the ICS.

The United States (US) is developing an Aggregation Method (AM) to a group capital calculation, which, if deemed comparable, will be considered an outcome-equivalent approach for implementation of the ICS as a PCR. In parallel to the finalisation of the ICS, a key remaining IAIS project is an assessment of whether the AM being developed by the US can produce comparable outcomes to the ICS, and hence be considered an outcome-equivalent approach for the implementation of the ICS as a PCR.

A team of technical experts within the IAIS Secretariat (representing both geographical diversity and expertise in both the AM and ICS) was mandated by the IAIS Executive Committee (ExCo) to conduct the robust technical analysis of comparability.

This analysis, based on data submitted by US groups and comparability criteria agreed upon by the IAIS ExCo in 2023 following public consultation, is nearing completion. A draft report on the technical analysis has been delivered to the IAIS’ ICS and Comparability Task Force (ICSTF), that will begin discussing the detailed analysis at its meeting on 3 September.

The ICSTF will report a recommendation to ExCo on the comparability assessment for decision, based on the technical input from the assessment team using the agreed approach to assessing the criteria. While the comparability criteria are to be assessed using a scaled approach that considers the degree to which each criterion is met, the final decision on comparability will be based on the criteria as a whole.

A series of ICSTF meetings have been scheduled in September and October to agree on a recommendation to the ExCo for its decision ahead of December. The goal is to ensure that the AM would produce similar, but not necessarily identical, results to the ICS over time that trigger supervisory action on group capital adequacy grounds.

The ICS and AM comparability assessment projects have been significant undertakings by the IAIS, involving substantial data collection, analysis, stakeholder engagement and senior-level deliberation. As we aim to cross the finish line on both of these projects in the coming months, this will mark an important milestone in the convergence of global solvency supervision.

To provide a comprehensive overview of the ICS, we have developed a series of five-minute videos explaining the business case, the development and the implementation plans for this global standard. I invite you to view this informative series as we approach the final milestones toward adoption – a journey that will pave the way for a more resilient and robust insurance sector.