ComFrame field testing, capital requirements and change dominated discussions at this year’s annual meeting, held in Chinese Taipei, for the International Association of Insurance Supervisors, according to a new report from Deloitte. This was the first IAIS meeting since the organization designated nine insurance groups as global systemically important insurers (G-SIIs).
According to Deloitte, backstop capital requirements (BCR) will be included in the first phase of group capital requirements to be imposed on G-SIIs. BCRs will lead into higher loss absorbency (HLA) requirements by 2019. But before that, in 2016, the IAIS expects to have developed risk-based insurance capital standards (ICS), which will be implemented by 2019.
The designations were made over the summer, and it was then announced that the companies would have to comply with new capital rules, to be announced by 2016, starting in 2019.
Before field testing begins, the IAIS is calling for comments from members and observers through Dec. 16, 2013. The comments will be used for a revised draft of ComFrame, or the Common Framework for the Supervision of Internationally Active Insurance Groups, which is expected to receive many more revisions throughout field testing.
Peter Braumuller, chair of IAIS’ executive committee, defended the growing focus on capital standards by emphasizing the industry’s global presence, before going on to say that capital adequacy assessments are the first step and IAIS plans to carry them out in 2015.
Braumuller also indicated that the field testing plan will include an annual cycle of quantitative testing in the second quarter of each year. This will begin in 2014 with valuation approaches and BCRs, followed by HLA testing for G-SIIs in 2015 and ICS testing also in 2015. There will be two rounds of qualitative field testing, one in 2014 and one in 2016.
He added that 20 internationally active insurance groups expressed interest in field testing ComFrame; “volunteers would get specific restricted workshops and access to much more material than observes,” according to the report.
“For U.S. regulators and industry members who have long opposed such capital standards, this may mark a turning point,” the report says. “Only time will tell if the United States, previously represented at the IAIS by state regulators from the National Association of Insurance Commissioners (NAIC), will be able to continue its strong opposition or if state regulators will be forced to work with fellow regulators at the IAIS with the aim of securing no worse than the least objectionable outcome.”
The debate over who will represent the U.S. on the IAIS is still a contested debate. The Federal Insurance Office, under Dodd-Frank, is charged with representing the United States in international matters, and since then FIO Director Michael McRaith has replaced the NAIC on the IAIS’ executive committee and held a chair on the technical committee, which was responsible for the announcing the creation of new global capital standards for insurers.
McRaith was unable to attend this IAIS annual meeting in Taipei, China, because of the government shutdown. However, two members of the Federal Reserve, charged with regulating designated financial institutions, were able to attend.
The NAIC originally held all three U.S. seats, but with the FIO taking one, and now the Fed potentially gaining a seat in the near future, that number could be reduced to one.
The report notes the shift away from state-dominated regulation since Dodd-Frank, suggesting that insurers should be paying more attention to international regulation, as this dual regulatory system becomes a reality .
For more from the report, click here.
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