29 November 2013

Risk.net: Global capital standard may require 'adjustments' to national supervisory regimes

The IAIS is working on a harmonised regime for the supervision of internationally active insurance groups, known as ComFrame, including a quantitative capital element. But as the experience of the banking sector in formulating a universal capital standard has shown, it is likely that ComFrame will be but one of a series of capital standard frameworks for the insurance industry, according to Kevin Nixon, managing director, regulatory affairs, at the Institute of International Finance (IIF) in Washington, DC. "I have no illusions the ICS will be a first attempt at creating an insurance capital standard. Just as there was a Basel I, II and III, I wouldn't be surprised at all if there was an ICS I, II, III as well", says Nixon.

"Every capital regime continues to change. Regulators are always adjusting, and post-crises supervisory regimes have changed dramatically. With an ICS regulators will likely need to adapt their regimes to accommodate both business developments and lessons learnt, and also in order to add more detail", he adds.

The current timeline for implementation of the ICS will also clash with the application of Solvency II in Europe. The IAIS is scheduled to begin testing the ICS from 2015 so as to finalise the calibration by 2016 – the same year Solvency II will be applied to European insurers.

Supervisors have not ruled out altering the latter directive to conform to any new international standard. Gabriel Bernardino, chairman of EIOPA, said: "The objective should be to have Solvency II as a practical implementation of the international standard. Nevertheless, we should be open to make adjustments to our system if that is needed. Companies should be subject to only one capital standard."

Bernardino has previously stated the European Union needs to weigh in on development of the ICS as soon as possible, as it is unlikely that, 10 years from now, European institutions  will hold the commanding position in global regulation they enjoy today.

Yoshihiro Kawai, secretary-general of the IAIS, has already stated his desire for ComFrame to be "translated into local regimes", and has insisted it will not constitute "an additional layer of supervision". However, national regulators are at least preparing for the possibility that Solvency II will have to be reopened to comply with the new framework. A spokesperson for BaFin, the German financial regulator, says: "Currently we expect that if there is any part of ComFrame at all that may eventually require noteworthy changes in Solvency II, it would be the part of the quantitative requirements. It is not yet clear to us what the final product will look like and whether, and if so which, changes may need to be made in Solvency II."

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