IAIS launches consultation on ICS as prescribed capital rule

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The International Association of Insurance Supervisors has asked stakeholders for their views on the adoption of the long-awaited Insurance Capital Standard as a prescribed capital requirement for the world’s largest re/insurers. 

In its fourth and final public consultation on the ICS before its planned adoption in December 2024, the IAIS said the ICS, as a prescribed capital rule, will provide a “consolidated, risk-based measure of capital adequacy” for the world’s largest firms, known as internationally active insurance groups.

Group-wide supervisors will use the ICS as a binding requirement, at the group level, for IAIGs headquartered in their jurisdictions, said the association. 

Vicky Saporta, executive committee chair of the IAIS, said the standard is the result of 10 years of development, three consultations, six field-testing exercises and three years of confidential reporting. 

She said: “Once adopted at the IAIS Annual General Meeting at the end of 2024, the ICS will provide a common language for cross-border supervisory discussions on insurance group solvency in a world where we face many common and interconnected global risks.”

In addition to feedback on the standard itself, the IAIS is collecting input on the foreseeable economic impact of ICS implementation, which will evaluate the effects that the implementation of the ICS may have on product availability, insurers’ business models and financial markets.

“Taken together, the ICS as a PCR public consultation, the economic impact assessment and the additional data gathered during the ICS monitoring period will provide a significant body of evidence to inform the IAIS’ decision on the adoption of the ICS at the end of 2024,” said Jonathan Dixon, IAIS secretary general.

The IAIS has also released the 2023 ICS and aggregation method data collection packages, which previously launched in April 2023 with volunteer groups, with submissions due at the end of August.  

Concurrently with the ICS consultation, the IAIS is also launching a public consultation for two revised Insurance Core Principles: ICP 14 (Valuation) and ICP 17 (Capital Adequacy).

ICP 14 establishes supervisory requirements for the valuation of assets and liabilities for solvency purposes. ICP 17 establishes requirements for regulatory capital resources and requirements. 

The IAIS said: “The ICPs form part of the globally accepted framework for insurance supervision and are relevant for all insurers.”

The consultations - candidate ICS as a PCR and ICP 14 and ICP 17 - run until 21 September. 

The IAIS will hold a public background webinar on 29 June from 13:30 to 15:30 CEST to share further details on the consultations and answer questions from stakeholders. To register, please click here.

ICPs 14 and 17

Insurance Core Principles are comprised of principle statements, standards and guidance, as a globally accepted framework for insurance supervision.

ICPs 14 and 17, in particular, establish the core foundation for all quantitative, risk-based insurance supervision and, therefore, also for the ICS. Both principles have been updated mainly to further enhance the consistency of the text and improve readability.

The two principles were not included in the ICPs revision of 2019 but as part of the Abu Dhabi agreement in 2019, it was decided that these two revised ICPs, along with their related terms in the IAIS Glossary, would be adopted by the end of the monitoring period. 

What is the ICS and what does Europe think of an international capital rule?

According to the IAIS, the ICS aims to provide a “globally comparable risk-based measure” of capital adequacy for the world’s most internationally active insurers, known as IAIGs. It forms the quantitative pillar of the Common Framework for the supervision of IAIGs.

Approved in November 2019, ICS version 2.0 is being used during the monitoring period (2020-2024) during which the ICS results are not used as a basis to trigger supervisory action.

The consultations launched by the IAIS did not come as a surprise in Europe, as lobby group Insurance Europe had been expecting them. 

Writing in Insurance Europe’s latest annual report last month, Olav Jones, deputy director general at Insurance Europe, said his organisation supports the ICS project “as long as it results in a measurement framework that correctly captures insurers’ risks and long-term business and is a single standard applied widely and in all key insurance markets globally”. 

“Such a global standard will have the potential to help level out the international playing field, safeguard financial stability and strengthen coordination between international supervisors,” he continued. 

Jones also raised concerns over the development of the ICS.

To be fit for implementation as a global prescribed capital requirement, Jones argued it needs to be based on a common methodology that achieves comparable (ie, substantially similar) outcomes in all jurisdictions. 

To be comparable, he said the ICS and any methodologies deemed comparable, including the Aggregation Method, need to result in very similar supervisory responses to changing economic and other conditions. 

Jones also highlighted the importance for re/insurers to be able to use internal models as part of the ICS.

He said: “It is also important that the ICS permits re/insurers with larger, more complex risks to use — subject to supervisory approval — their own, sophisticated and more accurate internal models rather than standard formulas to calculate regulatory solvency capital requirements. Internal models must be a permanent and integral part of the ICS framework.”

The US aggregation method

The US and other interested jurisdictions are developing an AM for calculating group capital adequacy that builds on the existing requirements in their jurisdictions. 



This is a different methodology to that of the ICS for calculating capital, Jones explained.

He said: “The AM can only be considered as comparable if a group’s prescribed capital requirement requires them to hold similar overall levels of capital to the ICS and if the PCR is breached at similar points as under the ICS, leading to the same supervisory actions. Sufficient evidence of this must be explicitly included in the comparability assessment.”

Jones added that assessment must be subject to “high levels of transparency” in terms of exactly what will be tested, how it will be tested and by whom but said that at present, many of these aspects have not yet been disclosed by the IAIS.

Who are the world’s largest re/insurers?

To date, 52 IAIGs have been identified by relevant group-wide supervisors across 17 jurisdictions.

Named IAIGs and their supervisors’ jurisdictions:

What are your views on the ICS as a prescribed capital requirement?

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