IAIS update

Analysis

IAIS update: 2017 annual meeting

Insurance supervisors focus on risk and regulatory standards

The 24th annual conference of the International Association of Insurance Supervisors (IAIS) was marked by debate, compromise, and progress on key issues including international regulatory standards, valuation methods, and systemic risk management.

Compromise and progress in Kuala Lumpur

Held November 2–3, 2017 in Malaysia's capital city, the 24th annual conference of the IAIS was marked by debate, compromise, and progress—and a record number of attendees for an IAIS annual meeting.

The city's name, Kuala Lumpur, translates to "muddy confluence," which proved an apropos description of the discord and dialogue that swirled around the IAIS's premier project, the Insurance Capital Standards (ICS). Thought partly a product of the turbulence surrounding the US–European relationship, debate from each side featured strong views on ICS and a determination to bring clarity to specific issues. A pre-conference meeting of ICS stakeholders featured healthy and productive discussion on the issues in contention and resulted in mutually agreed-upon changes to the ICS implementation process.

This conference also marked a leadership change, with longtime IAIS Secretary-General Yoshi Kawai presiding over his last meeting. Gen. Kawai, who had served the IAIS for almost 20 years, stepped down at the end of the conference and was officially replaced by new Secretary-General Jonathan Dixon of South Africa. In comments posted after the conference, Gen. Dixon said, "This has been an exceptional week of accomplishments, from key agreements on group capital standards . . . to approval of revisions of Insurance Core Principles."

Differing perspectives on ICS implementation

The IAIS has said that it is developing the ICS to "create a common language for supervisory discussions of group solvency to enhance global convergence among group capital standards." However, the ICS stakeholders meeting—held the day before the start of the annual conference—laid bare several concerns and conflicting opinions regarding the implementation of those standards. Many argued for a pause in the ICS implementation process, urging the IAIS to listen to and incorporate feedback with the goal of establishing a process that could be widely and easily implemented. Among the ideas with broad support were a delay or a soft launch for ICS v2.0, the inclusion of internal models, and some deference to local differences. Concerns also were expressed about the possible anticompetitive effects on Internationally Active Insurance Groups (IAIGs), and the lack of an accepted definition of comparability.

By the time the conference officially opened, compromised had won out over conflict. IAIS Executive Committee Co-chair Victoria Saporta informed attendees that ICS stakeholders had reached an agreement for a soft launch of ICS v2.0 and offered the possibility of eventual acceptance of internal models and the US-preferred aggregation approach to capital requirements. While current field testing will continue through 2019 as planned, there will be significant changes that now include extending the runway to five years. Following 2019 field testing, there will be a five-year monitoring period during which filings will be used for confidential reporting to group-wide supervisors and for discussion in supervisory colleges.

Taking a closer look at an activity-based approach to systemic risk

As the official standard setter of insurance regulation worldwide, the IAIS has been tasked by the G-20's Financial Stability Board with monitoring and mitigating systemic risk in the insurance sector. This includes recommending the designation of certain insurers as Global Systemically Important Insurers (G-SIIs). The 2017 G-SII designation work continues and, according to Elise Liebers, acting chair, IAIS Financial Stability and Technical Committee, decisions should be expected within a few weeks of the annual meeting. Note: On November 21, 2017, the Financial Stability Board and IAIS announced that they would not be publishing a new list of G-SIIs for 2017. 

Alberto Corinti, chair, IAIS Systemic Risk Assessment Task Force, provided an update on the relatively new activity-based approach to systemic risk management that is being considered by the IAIS. "We should not see the development of the activity-based approach as a different framework from what we have done up to now," he said, adding that it was more building on previous work, which has been focused on entity-based systemic risk management. Calls for an activity-based approach have increased recently, including in the latest US Treasury report.

An interim consultation to gather feedback to inform the evaluation work will start soon, with the resulting paper presenting issues and directions for moving forward. The focus will be on risk exposure, not the legal form of the entities, and the starting point will include work already done by the IAIS. Corinti concluded by saying that no decision has yet been made on whether the activity-based approach would complement or replace the entity-based approach.

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Work continues on other key fronts

The IAIS Major Projects Update panel outlined the structural changes in the making for IAIS. A policy development committee will now be in charge of standard setting, and an assessment committee will oversee implementation. There will also be a macro-prudential policy committee. The IAIS is currently looking for chairs for all three committees.

The adoption of revised Insurance Core Principles (ICPs) continued at the annual conference. The ICPs are created by the IAIS and set standards for regulating insurers worldwide. Adopted at this meeting were: ICP 13 on reinsurance and other forms of risk transfer; ICP 18 on intermediaries; and ICP 19 on conduct of business. Work continues on other ICPs, including ICPs 15, 16, and 8, which will be released for consultation, and ICP 24, which is to be finalized after the work of the activity-based approach team is completed in 2019. The revised ICPs will not be implemented until adoption by an annual general meeting.

The implications of big data for the insurance industry and its customers continues to be a top-of-mind issue. The "Looking Beyond Current Business Models and Distribution Strategies: 'High Tech' vs. 'High Touch'" panel explored how insurance regulators could help foster innovation, promote competition, and protect consumers. Panelist Birny Birnbaum, executive director of the Center for Economic Justice in the United States, said big data had the potential to benefit consumers and insurers, but came with huge implications for fairness that regulators may not be equipped to address. Panelists suggested that the use of advanced analytics and a focus on outcomes (versus process) could offer more effective ways to understand and regulate the use of big data.

Read more, learn more

These are only some of the highlights from the many sessions and discussions that took place at this year's annual conference. To get a complete picture, download Deloitte's 2017 update.

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Read overviews of discussions held during the annual IAIS seminars over the past several years.

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