17 December 2013

Responses to IAIS ComFrame draft: GFIA, GIAJ, Insurance Europe

GFIA

The GFIA expressed concerns about the level of prescriptiveness of certain provisions and the structure of cooperation in supervisory colleges.

The GFIA believes that it is vitally important that ComFrame does not create an additional and prescriptive layer of regulation that disregards local regimes. Instead it should provide a principles-based framework that can promote better understanding and — through coordination and cooperation among supervisors — facilitate reliance on and recognition of the group supervision conducted by jurisdictions that meet the ComFrame standard.

The GFIA welcomes the inclusion of "cornerstones” that set out fundamental principles important to the success of ComFrame, such as proportionality, the approach to group-wide supervision, operational structures and the allocation of roles. It emphasises the importance of ComFrame's standards, parameters and guidance being consistent with those principles.

Full response

GIAJ

GIAJ appreciates the draft ComFrame in that some articles are consolidated and overlaps with the ICPs are reduced, making the draft easier to understand overall. Having said that, GIAJ also believes that ComFrame should be a framework that ensures that various types of insurance groups have a certain degree of latitude to establish reasonable arrangements depending on their respective characteristics, taking into account merits and demerits. In that sense, the current version of the draft still has descriptions requiring the Governing Body to set up an excessive governance and management structure. For example, insurance businesses, especially primary insurance businesses, are highly local and tightly associated with the characteristics of the jurisdictions where the entities are located. Each group entity establishes an underwriting policy and claims management policy based on its management strategy and policy, and maintains an actuarial function to appropriately assess its liabilities. In our view, there is no necessity for the Governing Body to maintain functions that overlap with those of the individual entities. Such roles should be appropriately allocated within the group.

Concretely, GIAJ believes the Governing Body should take on appropriate risk control from the viewpoint of the group as a whole, by establishing a group-wide ERM policy and determining its risk appetite.

As for Recovery and Resolution Plans (RRP), we understand that related articles will be discussed in M3E3 (Crisis management and resolution measures among supervisors). Given that the original purpose and meaning of RRP is to address systemic risk and such risk may exist within NTNI businesses and not within traditional insurance businesses, GIAJ believes the contents of resolvability assessment and RRP should be commensurate with the size and complexity of NTNI businesses. As for insurers with a small amount of NTNI businesses, approval should be given to simplify their resolvability assessment and RRP depending on the degree, frequency and scope of their NTNI businesses.

Full response

Insurance Europe

Insurance Europe acknowledges the improvements made to the current draft in line with many of the comments submitted by Insurance Europe and others during previous consultations. In many cases, greater flexibility is now provided on how a particular standard can be met and the reclassification of guidance as purely illustrative has played an important part in achieving this. However, on looking at the detail considerably more still needs to be done if ComFrame is to remain consistent to its objective of fostering commonality and assisting comparability without being ‘a highly prescriptive set of rules’. In this regard, Insurance Europe believes Module 2 still needs to be made less prescriptive and Module 3 strengthened and given greater prominence.

Despite some improvements the level of prescription of Module 2 continues to raise concerns on how it will interact with local supervisory regimes. In this regard, it is important that, while strengthening group supervision and improving the cooperation and coordination between supervisors, ComFrame does not create an additional and prescriptive layer of regulation which disregards robust national or regional group supervision regimes. Instead the goal of ComFrame should be to provide a principles based framework against which local regimes can be assessed. Where jurisdictions meet the ComFrame standard involved supervisors should then be strongly encouraged to rely on the group supervision conducted by the group supervisor (i.e. group supervision should be considered equivalent and as such additional verification at group or subgroup level should not need to be carried out).

The IAIS have announced that the new risk based Insurance Capital Standard (ICS) will be incorporated into ComFrame. Decisions on capital adequacy should never be made in isolation but alongside qualitative risk management and governance considerations. However, Insurance Europe hopes its inclusion does not result in the delay of improvements with respect to supervisory cooperation and coordination which could otherwise be facilitated by ComFrame’s implementation.

After many years in development Solvency II is now due to be implemented in 2016. Significant resources and expertise have gone into its development and therefore it is vital to the European insurance industry that the ICS sets principles for balance sheet valuation and capital requirements that are aligned and compatible with economic sophisticated risk based capital regimes such as Solvency II.

With respect to Module 3 Insurance Europe would like to see the ComFrame text considerably strengthened to ensure that supervisory colleges have mechanisms to maintain their operation in both going concern situations and stress scenarios. In this regard we would welcome the inclusion of a clear decision-making process, ‘comply and explain mechanism’ and non-binding mediation process in the ComFrame supervisory colleges.

Insurance Europe is also particularly concerned by the IAIS using the FSB’s key attributes for effective recovery and resolution regimes, which was designed with banks in mind, as a starting point for its work on resolution in ComFrame while insurance specific guidance is still to be finalised. However, Insurance Europe will await the insertion of the draft text into Module 3 Element 3 before drawing any further conclusions in this regard. Insurance Europe expects to be provided with an opportunity to comment on this element at a later stage given its omission from this consultation. 

Full response

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