17 February 2015

Insurance Europe's response to the IAIS consultation on a risk-based global Insurance Capital Standard

Insurance Europe, the European insurance and reinsurance federation, welcomes the opportunity to respond to the IAIS consultation on the risk-based global insurance capital standard.

Developing multi-national risk-based solvency systems requires significant time, effort and engagement from both regulators and industry to design and test measures that are able to 1) capture the true risk profile of the insurance business and 2) minimise unintended consequences.

With the recent European experience of developing Solvency II in mind, Insurance Europe believes that it would be more realistic for the IAIS to give itself enough time to design and test measures that are fit-for-purpose, take into account the wide variation in product design, risks and risk mitigation across the global insurance industry and that do not result in unintended consequences.

Insurance Europe believes that the ICS project should aim at achievable incremental progress.

Insurance Europe is confident that sophisticated regimes, such as Solvency II, will represent an acceptable implementation of the ICS framework.

Insurance Europe therefore believes that the ICS project should be defined as a set of stepping stones. While the ultimate target for the ICS should indeed be comparability of outcomes (such as available and required capital), at this stage the IAIS should focus on:

• Defining fundamental principles for the ICS construction.
• Considering how the ICS would interact with existing and future solvency regimes.

Before progressing to the subsequent stepping stones, the IAIS should take the time to consider the impact of proposals that have already been implemented, and take stock of any developments in capital regimes around the world.

At this stage it’s not clear what is meant by a “minimum standard” and what kind of “minimum standard” would deliver on the comparability objective.

Looking ahead, Insurance Europe believes that:

• Local regimes that are consistent with the ICS framework should be recognised as a suitable implementation of it, subject to sufficient supervisory control as part of the framework to ensure a level playing field.
• If a number of local implementations are in line with the ICS framework, IAIGs should be given the option to choose which of the “equivalent” local implementation to apply for their business.

Care needs to be taken to avoid forcing insurers to manage their capital and risks based on multiple and differing measures (for which supervisors will have the responsibility of oversight).

As highlighted in the past, Insurance Europe believes that a better understanding of how likely it is for IAIS member countries to actually adopt and implement the ICS frame work globally is needed. For example, does the IAIS plan to seek global commitment and, more specifically, G-20 commitment to support implementation?

Full response

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