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International Group Head Defends Consideration of U.S.-Backed Proposal

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The head of the International Association of Insurance Supervisors (IAIS) is defending the idea of testing a capital calculation proposal backed by the United States alongside the main IAIS international capital standards (ICS) approach.

Resources

  • Links to documents related to the ICS Version 2.0 monitoring period are available here.
  • An article about the IAIS approach to the capital standards project is available here.

Jonathan Dixon, the IAIS secretary general, talked about the decision to keep looking at the U.S.-backed Aggregation Method last week, in a statement posted on the IAIS website.

“One of the key ICS principles is comparability of outcomes across jurisdictions, thereby contributing to a level playing field and reducing the possibility of capital arbitrage,” Dixon said in the statement.

The effort to compare the Aggregation Method and the main IAIS Insurance Capital Standards Version 2.0 approach will help further the goal of creating a much more level playing field, Dixon said.

The Capital Standards Project

Many insurance organizations operate in two or more countries.

The regulators who belong to the IAIS say they want a good way to know how those international insurance groups are really doing, overall, and to keep groups from moving operations or capital from one jurisdiction to another simply to take advantage of lower or different capital standards.

The IAIS is trying to create a single global capital standard for “internationally active insurance groups,” through the Insurance Capital Standards Version 2.0 approach.

Many U.S. insurers and U.S. insurance regulators have argued that ICS Version 2.0 is a poor fit for U.S. insurers. They are promoting use of another approach, the Aggregation Method, for figuring out whether international insurance groups have enough capital.

The IAIS announced in November, at a meeting in Abu Dhabi, that it would start a five-year monitoring period for ICS Version 2.0, and that it will also look to see whether, in the real world, the Aggregation Method produces similar results.

The Aggregation Method Review

The IAIS will use a technical assessment process to compare the outcomes produced by the Aggregation Method and the ICS Version 2.0 method, Dixon said.

The IAIS has published a draft definition of the terms “comparable outcomes,” along with a discussion of the considerations that will guide the development of the high-level principles and criteria for the comparability assessment, Dixon said.

The draft definition, the high-level principles, and the draft comparability criteria will be subject to public comment periods, Dixon said.

Draft comparability criteria will be subject to public consultation in 2021, Dixon said.

“The IAIS has made it clear that this will be a robust and credible technical assessment that does not provide the AM [Aggregation Method] a free pass, while at the same time providing a viable path for the AM to be deemed an outcome equivalent approach,” Dixon said.

Dixon also said in the statement that the IAIS needs help from member regulators with persuading internationally active insurance groups to provide the data needed to apply ICS Version 2.0 and the Aggregation Method and see how they are working.

When the IAIS was putting ICS Version 2.0 through field testing exercises, about 70% of the internationally active groups participated, and those groups accounted for about 40% of the world’s total insurance premium revenue, Dixon said.

Reactions

The National Association of Insurance Commissioners (NAIC) has been one of the organizations leading the effort to persuade the IAIS to allow use of the Aggregation Method as an alternative to the ICS Version 2.0 method.

“The IAIS announcement appears consistent with what was discussed and agreed to by IAIS members in Abu Dhabi,” the NAIC said in a written response to a question about Dixon’s statement. “Team USA continues to make progress on the Aggregation Method approach and is actively participating in the monitoring period with the goal of ensuring the AM is appropriately recognized as providing comparable outcomes to that of the ICS.”

Mariana Gomez-Vock, the associated general counsel at the American Council of Life insurers, gave this written response to a question about Dixon’s statement, after the original publication date for this article: “We look forward to further discussions and share U.S. regulators’ support for a risk-based capital standard that has proven to be effective in protecting policyholders.”

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