ICS 2.0 a ‘major step’ to single global capital standard

The International Association of Insurance Supervisors (IAIS) has called the development of Insurance Capital Standard (ICS) Version 2.0, which has begun its five-year monitoring period, a major step forward to the ultimate goal of a single global capital standard for internationally active insurance groups (IAIGs). IAIS secretary general Jonathan Dixon said the ultimate goal is a single ICS that includes a common methodology by which one ICS achieves comparable (substantially the same) outcomes across jurisdictions. He added that ICS Version 2.0 is to be used during the five-year monitoring period, during which the ICS will be used for confidential reporting and discussion among supervisors in supervisory colleges. According to the IAIS, the purpose of the monitoring period is to monitor the performance of the ICS over a period of time, and not the capital adequacy of IAIGs: “For this purpose, the monitoring period is intended to be a period of stability for the reference ICS. This does not preclude possible clarifications/refinements and correction of major flaws or unintended consequences identified during the monitoring period to improve the ongoing development of the ICS. For this reason, the active participation of IAIGs in the monitoring period is very important to provide effective feedback on the ICS.” The European Insurance and Occupational Pensions Authority (EIOPA) said: “From a European perspective, the successful implementation of Solvency II and its proper fine-tuning and review is our biggest priority and in parallel we remain as strongly committed as ever to the next stages of the ICS journey. We will continue to work with our international peers from all continents in order to ensure that the final ICS standard is based on a market-adjusted valuation, that capital requirements are sufficiently robust and risk-sensitive, and that internal models are allowed to be used under sound and prudent criteria.” Gabriel Bernardino, EIOPA chairman, said: “Our vision is that in those circumstances, European legislators should be comfortable to endorse the ICS and make any necessary adjustments to Solvency II to ensure that European IAIGs are required to use only one capital framework that meets international standards. From an EIOPA standpoint, the main objective of this journey continues to be the setting up of one single, risk-based ICS that would promote a level playing field between IAIGs headquartered in different parts of the world, reducing arbitrage opportunities and supporting financial stability.” He noted that this was not easy to achieve because many different valuation methods and capital standards are currently used by different jurisdictions to assess group capital adequacy. However, he added that the progress made in the last few years, and in particular the agreement on ICS 2.0, “shows that this convergence process is unstoppable”. The IAIS noted that its US members have indicated that their supervisory framework does not support a group-wide consolidated approach to a prescribed capital requirement, and hence the US and other interested jurisdictions are developing an aggregation method (AM) that follows a different approach to the ICS, but which they aim to use as their implementation of the ICS on an outcome-equivalent basis. The IAIS said it will be assessed in terms of whether it provides comparable outcomes to the ICS. Mr Bernardino said that the assessment “needs to be based on data showing that the AM and the ICS produce similar results over time and under different economic and market conditions over the business cycle, and that they trigger similar supervisory action on group capital adequacy grounds”. He concluded: “Above all, the AM cannot be less prudent than the ICS.”

ICS 2.0 a ‘major step’ to single global capital standard

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