On March 25, Julian Adams (PRA Director of Insurance) gave a speech on the challenges affecting global systemically important insurers (G-SIIs) after designation. Adams summarises the measures that are being developed for those firms that have been identified as systemic.

Higher loss absorbency (HLA) requirements will aim to capture risks associated with non-traditional and non-insurance (NTNI) business. The basic capital requirement (BCR), currently in development, will serve as a global basis to which HLA can be consistently applied. In addition, the Financial Stability Board (FSB) believes that an insurance capital standard (ICS) is needed to achieve a sound capital and supervisory framework for the insurance sector more broadly. Adams notes that it is too early to comment on the likely interaction between the ICS and other measures under development. Although challenging, Adams believes the timetable set by the FSB is achievable.

The International Association of Insurance Supervisors (IAIS) began field testing for the BCR on March 21, requesting insurers’ best estimate of liabilities on four different bases in order to test the impact of various valuation approaches. This approach, Adams states, gives regulators the best chance of collecting comparable data across different jurisdictions in order to develop a BCR that is meaningful and credible on a cross-border basis. The use of a best or current estimate by all firms in determining the value of an insurer’s liabilities is essential for a globally consistent capital measure. Adams is keen to point out that this exercise is not about Europe imposing Solvency II on the rest of the world and reiterates his belief that Europe ‘must shape, but also be prepared to be shaped by others, in developing global insurance measures.’

Meanwhile, IAIS has published feedback to its consultation on the BCR for G-SIIs and an update how development of the BCR is progressing. The IAIS highlights the main issues raised by respondents relating to the role and objective of the BCR, interaction with other capital requirements and NTNI activities, among others.

View G-SIIs: issues, policies and challenges after designation, 24 March 2014

View Summary of feedback to IAIS consultation on BCR, 18 March 2014

View Resolution of main issues from the comments on Basic Capital Requirements (BCR) for Global Systemically Important Insurers, 18 March 2014