31 October 2014

Commercial Risk Europe: New IAIS global capital requirements unlikely to cause problems for traditional insurers

The BCR are the first step in a process to develop global capital standards for G-SIIs. From 2019, these insurers will have to hold capital of at least the BCR, plus a higher-loss-absorption (HLA) requirement.

The BCR for G-SIIs announced last week by the IAIS are relatively low, said Fitch. As a result insurers with traditional business models will likely face little increase in total capital requirements but those with non-traditional operations could face much larger rises.

The IAIS announced last Friday that it has concluded its development of the first ever global insurance capital standard BCR for G-Slls. Endorsed by the Financial Stability Board (FSB), the BCR applies to group activities, including non-insurance operations, of G-SIIs.

The IAIS has set the BCR at a relatively low level, said Fitch, equivalent to 75% of the average capital requirement for G-SIIs under existing rules in their home market. But the HLA will not be finalised until late 2015, so the final overall impact remains uncertain, said the ratings agency.

From 2015 the BCR will be reported on a confidential basis to group-wide supervisors and be shared with the IAIS for refinement purposes. During this reporting period, the IAIS will review the suitability of the BCR to ensure it remains fit for purpose.

"With design of the BCR now complete the IAIS has concluded the first of several steps in its process to develop group-wide global insurance capital standards," said Peter Braumüller, Chair of the IAIS Executive Committee. "This achievement demonstrates the commitment of our members to our mission to promote globally consistent supervision of the insurance industry and contribute to global financial stability.”

The development of the BCR is the first step of a long-term project to develop risk-based, group-wide global insurance capital standards. The second step-the development of HLA requirements-is due to be completed by the end of 2015. The final step is the development of a risk-based group-wide global insurance capital standard (ICS), due to be completed by the end of 2016 and applied to Internationally Active Insurance Groups (IAIGs) from 2019.

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Press release IAIS

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