The recent release by the International Association of Insurance Supervisors (IAIS) of its consultation paper on a risk-based global insurance capital standard (ICS) is the latest instalment in a multi-year programme towards developing a global standard.
However, while this is one step closer to having a clear standard that global insurers can adopt, further regulatory reform may be required to ensure that it is consistent, experts claim.
ICS will apply on a group-wide, consolidated basis to around 50 of the largest international insurance groups (IAIGs) from 2018, with confidential reporting to supervisors starting in 2017. Key areas covered by the consultation paper relate to valuation, qualifying capital resources and potential approaches for determining capital requirements.
However, KPMG warns there is still much to do, pointing out that minimum standards could leave potential for regulatory arbitrage
“We have long supported the IAIS endeavours to develop a global capital standard. However, the practical application by supervisors will be equally as important as the requirements themselves. In this regard, the interplay between the ICS and local regulatory requirements will be critical,” said Gary Reader, Global Head of Insurance, KPMG International.
“In addition, as the ICS will not apply at a legal entity level, groups will face additional challenges in managing both solo and group requirements. The minimum standard nature of the proposals will mean that local jurisdiction supervisors must demonstrate that their own regime is at least as strong as the ICS, or groups headquartered there will face an additional layer of reporting requirements, with confusion as to which becomes their binding requirement.”
Global insurers need to take note of the changes and respond to the consultation. The deadline for finalization of the ICS is December 2016.