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In highlights from the First Monday series, A.M. Best’s Senior Economist Meg Mulry looks at development of international capital standards (ICS) by the International Association of Insurance Supervisors (IAIS), and the timeframe for adoption.

Ms. Mulry notes that the Financial Stability Board (FSB) and the IAIS have identified nine insurance companies that are deemed systemically important. She says the regulators are looking to “stress test these companies in the event of a major market dislocation, or a company-specific event that could impact the overall market.” The FSB believes that these companies should hold more capital for the overall market.

The IAIS has been developing a capital model for systemically important companies and capital standards that capture all the risk they are facing. Ms. Mulry says the IAIS hopes “to incorporate these new capital standards into CommFrame (Common Framework) that all international regulators use to oversee companies that operate in many jurisdictions.”

According to Ms. Mulry, A.M. Best is cautious about the impact the ICS could have on the global insurance market, and will be evaluating the unintended or unforeseen consequences it might have on pricing, product mix, product offering, risk appetite, investment strategies and the cost of capital for companies to operate.

The timeframe for the new regulations are as follows:

  • December 2016 – Insurance capital standards (ICS) are finalized.
  • 2017-1018 – Field testing CommFrame and ICS and making modifications as needed.
  • Late 2018 – IAIS to adopt CommFrame and ICS.
  • 2019 – New regulations rolled out – ComFrame and ICS.

We’d like to thank A.M. Best for their contribution to World Risk and Insurance News (WRIN.tv). If you’d like to see more of the First Monday Series, visit the A.M. Best website.

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