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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.
“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.
This objective is not easy to achieve because many different valuation methods and capital standards are currently used by different jurisdictions to assess group capital adequacy. Nevertheless, the progress made in the latest years, namely the agreement on the ICS 2.0, shows that this convergence process is unstoppable.
While recognizing that only the future implementation of the ICS throughout the world will bring the necessary convergence to the supervision of IAIGs, conceptually, it could be possible to imagine a situation where a different capital calculation methodology would deliver substantially the same outcomes as the ICS. The recognition of this comparability could help the path towards convergence.
It is in this spirit that EIOPA approaches the assessment of comparable outcomes of the Aggregate Method (AM) currently under development by the United States supervisors. 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. Above all, the AM cannot be less prudent than the ICS.