Fitch Ratings says in a new report that the IAIS still has significant work to do in creating a risk-based global ICS for G-SIIs and other internationally active insurance groups.
The Insurance Capital Standard (ICS) is envisaged as a common methodology across jurisdictions but the implementation of an "appropriately" risk-based ICS is ambitious given local differences in accounting regimes, product risk profiles, and asset risk.
In 2015 the International Association of Insurance Supervisors (IAIS) announced the Higher Loss Absorbency (HLA) requirements for global systemically important insurers (G-SIIs). Fitch believes that this is likely to have a minimal, if any, impact on ratings. Based on 2013 and 2014 results, the G-SIIs, on average, already held capital at 260% of the new required levels and Fitch does not expect G-SIIs to need to raise further capital in response to the new requirements.
For HLA calculations, G-SIIs are placed into one of three buckets: 'Low,' 'Mid' or 'High', depending on their G-SII designation score. Fitch believes that the bucketing system may deter G-SIIs from becoming larger and more complex. Fitch believes that the G-SIIs may have some reputational concerns about being in the highest risk bucket. This bucket is currently empty and insurers would be wary of the potential negative connotations of being the only one included in this bucket.
In November 2015, the Financial Stability Board (FSB) removed Assicurazioni Generali S.p.A. and added Aegon N.V. to the list of G-SIIs. The FSB did not explain why it made the switch, but Fitch believes it could have been driven by changes in both companies' exposure to non-traditional and non-insurance business. This highlights the uncertainty and lack of transparency surrounding the G-SII identification process.
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