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IAIS Adopts First Global Frameworks for the Supervision of IAIGs

IAIS Adopts First Global Frameworks for the Supervision of IAIGs

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Hosted by the Insurance Authority (IA), the 26th annual conference of the International Association of Insurance Supervisors (IAIS) was held on 14-15 November 2019 in Abu Dhabi, under the theme of “Supervision in a Digital Era”. By hosting this international event in the UAE, this stands as a new achievement for the UAE, serving its international advance position. The IA has presented a strong file on the UAE and development of the insurance sector, along with the development of the infrastructure, service sector, and tourist facilities.

The IAIS global seminar welcomed regulators and industry stakeholders from around the world, introducing a comprehensive set of reforms designed to strengthen effective cross-border supervision of internationally active insurance groups, and to contribute to global financial stability – ultimately to the benefit of policyholders around the globe.

The adopted reforms include:

  • Finalisation of a comprehensive review and update of the IAIS Insurance Core Principles (ICPs), which apply to the supervision of all insurers;
  • Adoption of the Common Framework for the Supervision of Internationally Active Insurance Groups (IAIGs), known as ComFrame, which provides the first global framework for effective and globally consistent supervision of IAIGs;
  • Adoption of the Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector, developed in cooperation with the Financial Stability Board (FSB); and
  • Agreement on the Insurance Capital Standard (ICS) Version 2.0, the quantitative element of ComFrame, for a five-year monitoring period.

The Common Framework (ComFrame) establishes supervisory standards and guidance, focusing on the effective group-wide supervision of Internationally Active Insurance Groups (IAIGs). ComFrame is a comprehensive and outcome-focused framework that provides minimum supervisory requirements tailored to the international activity and size of IAIGs.

ComFrame will provide supervisors with a common language for the supervision of IAIGs. The implementation of ComFrame should result in more efficient supervisory processes for the benefit of both supervisors and IAIGs. ComFrame builds on the revised set of Insurance Core Principles (ICPs), that apply to the supervision of all insurers, and which were adopted after extensive review.

The Insurance Capital Standard (ICS) is being developed to create a common language for supervisory discussions of group solvency of IAIGs to enhance global convergence among group capital standards. The newly agreed ICS Version 2.0 for the five-year monitoring period, starting in January 2020, was developed through a structured and evidence-based approach, which included six quantitative Field Testing exercises throughout 2014 to 2019, extensive stakeholder engagement, and comprehensive discussion among IAIS Members.

During the monitoring period, ICS Version 2.0 will not trigger any supervisory action but will be used for confidential reporting and discussion in supervisory colleges to provide feedback to the IAIS on the ICS design and performance. The IAIS has agreed to a detailed plan for the operationalisation of the monitoring period, including a work plan and timeline for the period 2020-2024, and a collective effort to make participation by IAIGs in the monitoring period as significant as possible across different jurisdictions and business models.

Feedback from supervisors, ongoing data analysis, public consultations, and an economic impact assessment during the monitoring period will aid the further refinement of the ICS before its implementation as a group-wide prescribed capital requirement (PCR).

Lastly, in delivering its commitment to contribute to global financial stability, the IAIS adopted the Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector, for implementation from the beginning of 2020. This framework recognises that systemic risk can arise both from sector-wide trends with regard to specific activities and exposures, as well as from a concentration of these activities and exposures in individual insurers.

The Holistic Framework consists of an enhanced set of supervisory policy measures and powers of intervention, an annual IAIS global monitoring exercise and collective discussion on the outcomes and appropriate supervisory responses, and a robust implementation assessment.

In recognition of the fact that the Holistic Framework, consistently implemented, provides an enhanced approach to assessing and mitigating systemic risk in the global insurance sector, the FSB has decided to suspend the identification of global systemically important insurers (GSIIs) from 2020. In November 2022, the FSB will – based on the initial years of implementation of the Holistic Framework – review the need to either discontinue or re-establish an annual identification of G-SIIs.

“This has been a week of major achievements for the IAIS,” stated Victoria Saporta, IAIS Executive Committee Chair, at its Annual General Meeting in Abu Dhabi. “The reforms adopted by our Members mark a big step forward as a global community of supervisors in the pursuit of our mission to support the stability and sustainability of the insurance sector, protect policyholders and promote global financial stability.”

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