A Global Capital Standard for Insurers?
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January 21 2015
Paolo Cadoni (PRA)
Philipp Keller (Deloitte)
Paul Wright (CSFI Global Insurance Fellow)
- Consultation Paper - Risk-based Global Insurance Capital Standard (IAIS)
- Report - New Directions for Insurance: implications for financial stability (Paul Wright)
International banks have been subject to a global capital standard for over 25 years. Not so insurance, where firms are still subject to local – or, in the EU, regional – capital requirements. That, however, may all be about to change. In July 2013, the FSB announced that it would be working with the International Association of Insurance Supervisors (IAIS) to develop “a comprehensive, group-wide supervisory and regulatory framework for Internationally Active Insurance Groups (IAIGs), including a quantitative capital standard”. The IAIS has now issued a consultation paper (comments for which are due by mid-February), with a view to finalising the global capital standard by the end of 2016.
The technical challenges in developing such a standard are legion. The IAIS paper goes into valuation, definitions of capital and risk measurement at considerable (some would say mind-numbing) length. But many wider issues also need to be addressed:
- Does the world really need a global capital standard for insurance, given the diversity of insurance models and structures in different jurisdictions?
- Is it politically feasible, given that the ink is only just dry on Solvency II and that US regulators are happy with their existing arrangements?
- Is it really necessary to have a global standard as a pre-requisite to international supervisory coordination?
- The IAIS did well to develop the Basic Capital Requirement – a simple, non-risk based framework for looking at capital. If what policy makers really want is a base for higher capital requirements of ‘systemic’ firms, why not just tweak the BCR rather than starting again from scratch?
To discuss these and other issues, we are delighted to have put together a knowledgeable panel:
- Paolo Cadoni is technical head of department for the prudential policy division within the Bank of England. Before that he was a manager in the Solvency II office at the Financial Services Authority. He is chair of the IAIS ComFrame Field Testing Task Force and also of the EIOPA Internal Models Committee.
- Philipp Keller is a partner in Deloitte’s Insurance Risk Management practice, and also head of financial risk management at Deloitte. He was previously a partner at EY, which he joined after serving as head of R&D at the Swiss Financial Market Supervisory Authority and then the Swiss Federal Office of Private Insurance.