Yesterday, the International Association of Insurance Supervisors (IAIS) met for its Global Seminar, where the discussions included two major issues: climate risk and plans for the global Insurance Capital Standard (ICS).
On the IAIS’s plan to address climate risk, Olav Jones, deputy director general of Insurance Europe, said: “We welcome that the IAIS is facilitating a coordinated approach between jurisdictions on the issue of climate risks and sustainability. These are global issues that require a global approach. Furthermore, coherent policymaking between jurisdictions is required to avoid duplicative or inconsistent standards.
“Europe's insurers remain as committed as ever to supporting the transition to a more sustainable society and to tackling climate change. This vital work must go ahead despite the significant, new challenges created by the COVID-19 pandemic and without slowing the rapid progress needed in Europe to ensure the necessary data is available to meet new disclosure requirements.”
On the IAIS’ plans for the ICS, Jones commented: “Global competitiveness is a key priority for the European (re)insurance industry. This includes both developments in Europe, in terms of the review of Solvency II, and internationally, regarding the IAIS’ work on the ICS, which is particularly relevant for European groups, given the fact that more than a third of all global IAIGs are European.
“Insurance Europe agrees with the IAIS’ ultimate goal of a single ICS that includes a common methodology by which it achieves comparable (ie substantially similar) outcomes across jurisdictions. The industry therefore supports the ICS project on the condition that it leads to a high-quality and robust global insurance standard, which promotes a sound, global regulatory level playing field.”
It is vital that the comparability assessment exercise is based on a quantitative comparison and is sufficiently robust to ensure the same level of policyholder protection, so that it does not undermine the key objective of a global standard for prudential supervision.
To ensure comparable levels of policyholder protection, both the ICS and the aggregation method (AM) must trigger similar supervisory actions over time and at the same point in time under stressed conditions. The ICS and AM should also have the same target criteria for regulatory capital requirements (ie 99.5% VaR over 1 year) and a comparable level of responsiveness to changing conditions for balance sheet valuation, capital resources and requirements.
It is therefore disappointing that the IAIS decided not to reflect Insurance Europe’s proposed amendments to the high-level principles for the ICS. However, the IAIS has committed to consider this feedback in the development of the follow-up detailed criteria, so Insurance Europe looks forward to engaging with the IAIS on this.
Jones added: “The ICS can only be considered global if all major jurisdictions commit to implementing it consistently. This is another reason why a robust quantitative comparison between the ICS and the AM is essential.”