A first version of the principles was published in September 2014. Principles 3 and 6 were subsequently amended following the 2014 ICS CD. The principles will be followed in ICS development.
ICS Principle 1: The ICS is a consolidated group-wide standard with a globally comparable risk-based measure of capital adequacy for IAIGs and G-SIIs. The standard incorporates consistent valuation principles for assets and liabilities, a definition ofqualifying capital resources and a risk-based capital requirement. The amount of capital required to be held and the definition of capital resources are based on the characteristics of risks held by the IAIG irrespective of the location of its headquarters.
ICS Principle 2: The main objectives of the ICS are protection of policyholders and to contribute to financial stability. The ICS is being developed in the context of the IAIS Mission, which is to promote effective and globally consistent supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders and to contribute to global financial stability.
ICS Principle 3: One of the purposes of the ICS is the foundation for Higher Loss Absorbency (HLA) for G-SIIs. Initially, the Basic Capital Requirements (BCR) is the foundation for HLA for G-SIIs.
ICS Principle 4: The ICS reflects all material risks to which an IAIG is exposed. The ICS reflects all material risks of IAIGs’ portfolios of activities taking into account assets, liabilities, non-insurance risks and off-balance sheet activities. To the extent that risks are not quantified in the ICS they are addressed in ComFrame.
ICS Principle 5: The ICS aims at comparability of outcomes across jurisdictions and therefore provides increased mutual understanding and greater confidence in cross-border analysis of IAIGs among group-wide and host supervisors. Applying a common means to measure capital adequacy on a group-wide consolidated basis can contribute to a level playing field and reduce the possibility of capital arbitrage.
ICS Principle 6: The ICS promotes sound risk management by IAIGs and G-SIIs. This includes an explicit recognition of appropriate and effective risk mitigation techniques.
ICS Principle 7: The ICS promotes prudentially sound behaviour while minimising inappropriate pro-cyclical behaviour by supervisors and IAIGs. The ICS does not encourage IAIGs to take actions in a stress event that exacerbate the impact of that event. Examples of pro-cyclical behaviour are building up high sales of products that expose the IAIG to significant risks in a downturn or fire sales of assets during a crisis.
ICS Principle 8: The ICS strikes an appropriate balance between risk sensitivity and simplicity. Underlying granularity and complexity are sufficient to reflect the wide variety of risks held by IAIGs. However, additional complexity that results in limited incremental benefit in risk sensitivity is avoided.
ICS Principle 9: The ICS is transparent, particularly with regard to the disclosure of final results.
ICS Principle 10: The capital requirement in the ICS is based on appropriate target criteria which underlie the calibration. The level at which regulatory capital requirements are set reflects the level of solvency protection deemed appropriate by the IAIS.
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IAIS Releases 2016
Insurance Capital Standard Public Consultation Document Consultation Document reflects extensive public participation as progress towards riskbased global insurance capital standard remains on schedule Basel – In announcing the release of the Risk-based Global Insurance Capital Standard (ICS) Public Consultation Document, the IAIS today moved closer to adoption of the ICS according to its previously advised schedule — Version 1.0 by mid-2017 and Version 2.0 in late 2019. “
The release of this 2016 Consultation Document represents a major step towards making a global risk-based, group-wide capital standard a reality,” said Victoria Saporta, Chair of the IAIS Executive Committee. “
A sound capital and solvency framework for the insurance sector is critical for policyholder protection and will contribute to global financial stability. The ICS is a key part of the equation,” she added.
The purpose of the 2016 ICS Public Consultation Document is to solicit further stakeholder feedback on three key components for ICS Version 1.0 for confidential reporting purposes — valuation, qualifying capital resources and a standard method for determining the ICS capital requirement. Feedback on the 2016 Public Consultation Document is invited by 19 October 2016. The 2016 ICS Public Consultation Document is the second ICS consultation document issued by the IAIS. It is the product of broad public interaction. “
The development of the ICS consultation document results from transparent and broad public engagement,” stated Michael McRaith, Chair of the IAIS Financial Stability and Technical Committee. “IAIS members have engaged in extensive and ongoing field testing with over 40 international insurance groups, held numerous day-long stakeholder meetings and received hundreds of pages of public comments. As a result, the ICS is evolving and we expect steady progress in its development.”
The IAIS issued its first ICS consultation document in December 2014. The ICS is the third step of a multi-year project to develop a risk-based, group-wide global insurance capital standard. IAIS adoption of the Basic Capital Requirement in 2014 and Higher Loss Absorbency requirement in 2015 represented the first two steps. Both the public consultation process and field testing are critical to the evidence-based policy development of the ICS.
The IAIS will host a public background session on the 2016 ICS Public Consultation Document via teleconference on 27 July 2016 from 14:00 to 16:00 CEST (Central European Standard Time). To view the 2016 Risk-based Global Insurance Capital Standard (ICS) Public Consultation Document, please click here.
Consultation on Risk-based Global Insurance Capital Standard (ICS) Version 1.0 Public Consultation Document
Consultation: Comments due by 19 October 2016
Background: In 2013, the IAIS announced that a sound capital and supervisory framework for the insurance sector is essential for supporting financial stability and protecting policyholders. In recognition of this, the IAIS committed to develop a risk-based global Insurance Capital Standard (ICS). ICS Version 1.0 is scheduled for adoption for purposes of confidential reporting in mid-2017. ICS Version 2.0 is planned for adoption in late 2019. The ICS will be part of ComFrame—the Common Framework for the supervision of internationally active insurance groups. The IAIS previously adopted the Basic Capital Requirement and the Higher Loss Absorbency requirement in 2014 and 2015, respectively. Both these requirements were endorsed by the Financial Stability Board and apply to Global Systemically Important Insurers (G-SIIs).
This 2016 ICS Public Consultation Document is the second IAIS consultation in a multi-year process to develop the ICS. The IAIS issued its first ICS consultation document in December 2014. IAIS field testing exercises in 2014 and 2015, and the 2016 exercise which began on 20 May, are also informing the development of the ICS. Both the public consultation process and field testing are critical to the evidence-based policy development of the ICS.
The purpose of this 2016 ICS Public Consultation Document is to solicit stakeholder feedback on three key components of ICS Version 1.0 for confidential reporting purposes: valuation methodologies, qualifying capital resources and the implementation of risk based approaches to determine regulatory capital requirements. The focus of ICS Version 1.0 is on a standard method, with consideration of other methods of calculation of the ICS capital requirement to be addressed in Version 2.0.
Because the 2016 ICS Public Consultation Document contains over 230 questions, the IAIS is providing a three month consultation period. Feedback is invited by 19 October 2016 24:00 CEST (Basel time). The IAIS is seeking answers to the specific questions listed in the consultation and in each section of the document. This will also enable the IAIS to enhance the development of field testing technical specifications for later years.
The Consultation Tool for recording responses should be available from 29 July 2016. This page includes a Word template for use in developing responses prior to recording them using the Consultation Tool.