23 July 2013

Risk.net: G-SII proposals signal acceleration of plans for global capital standard

The IAIS's new capital requirements for G-SIIs will lay the foundation for a global capital standard for all insurance groups. But there are concerns as to whether a global capital standard could be applied uniformly across all jurisdictions, despite efforts to converge accounting practices.

The IAIS released updated policy measures for the enhanced regulation of G-SIIs on July 18, which included loss absorbency (LA) and higher loss absorbency (HLA) capital charges. The LA capital charge will apply to those G-SIIs designated by the Financial Stability Board (FSB) once the policy measures are finalised before the end of 2014, and the HLA will be apply from January 1, 2019.

The wording of the latest policy measures signal that policy-makers' plans to develop a global capital standard for all internationally active insurance groups (IAIGs) are accelerating, say experts. Previous drafts of the measures specified that any capital requirement would be targeted primarily at groups' non-traditional, non-insurance activities (NTNIA).

However, the final proposals describe the LA as a blanket capital charge on "all group activities, including non-insurance subsidiaries". The LA in particular, described as "a straightforward, backstop capital requirement" by the IAIS, is likely to form the basis of a new worldwide benchmark, according to John Fitzpatrick, Geneva-based secretary-general of insurance think-tank, the Geneva Association.

There are concerns whether a global capital standard could be applied uniformly across all jurisdictions, given the multiplicity of regulatory regimes and accounting standards practised around the world. A global capital standard calibrated without regard to the differences between these accounting regimes could create new competition issues for insurers, Fitzpatrick adds.

How a new global capital standard will link with the IAIS's existing work on the common framework for the supervision of internationally active insurance groups, known as ComFrame, also needs to be clarified. The intention is that ComFrame will be adopted by the IAIS in 2018.

The IAIS said last week that a working group will outline plans to develop a comprehensive, group-wide supervisory and regulatory framework for IAIGs, including a quantitative capital standard by October 2013. It said that detail on the level of crossover between ComFrame and the G-II project will be provided in the October work plan.

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