The International Association of Insurance Supervisors (IAIS) today unveiled what it envisions as a uniform capital framework for internationally active insurers, or global systemically important insurers (G-SIIs).
Called the “Basic Capital Requirement” or BCR, analysts see it as the likely template for the future capital standard framework the Federal Reserve will impose on domestic insurers it regulates or SIFIs, systemically important financial institutions.
These are currently American International Group and Prudential Financial, as well as MetLife, which is challenging its designation as a SIFI.
Others amongst the nine designated as G-SIIs that do business in the U.S. are Allianz and AXA. Others are Aviva, Assicurazioni Generali, Ping An Insurance and Prudential PLC.
“U.S. regulators have indicated that they see this is the first step toward the global agenda of higher capital standards for all insurers,” said Howard Mills, the chief advisor to Deloitte’s insurance industry group and a former Superintendent of the New York Insurance Department.
However, BCR substantively conflicts with a more flexible reserving policy, Principles-Based-Reserving (PBR), that life insurers are seeking to persuade state legislators and regulators to support.
Mills, who is attending the IAIS conference in Amsterdam, said U.S. insurers are concerned about BCR because they fear “there will be negative consequences for higher global capital standards,” specifically, “fewer products going to market and higher costs for policyholders.”
Mills said the U.S. industry, both property and casualty and life, has urged the IAIS “to slow down, and be more sensitive to local regulatory systems.” Mills said the U.S. companies and trade group said the IAIS should “acknowledge the success of the U.S. regulatory policy, based on what happened during the financial crisis,” as well as “be mindful of the impact of BCR on policyholders.”
Mills said the BCR standards conflict with the PBR standard being pushed by the life insurance industry. “Basic BCR is a statutory policy that offers less flexibility than PBR,” Mills said. “PBR is contrary to the basic BCR initiative,” he said.
Mills said action on PBR has been stalled because of opposition by New York and California.