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Regional Information Session Cape Town, 5 March 2010. Developments in the IAIS Solvency and Actuarial Issues Subcommittee Rob Curtis - Chair. Outline. Introduction of the IAIS and its approach to risk-based supervision Insurance Core Principles for effective supervision - PowerPoint PPT Presentation
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Regional Information SessionRegional Information SessionCape Town, 5 March 2010Cape Town, 5 March 2010
Developments in the IAIS Solvency and Actuarial Issues Subcommittee
Rob Curtis - Chair
2Cape Town5 March 2010
OutlineOutline
• Introduction of the IAIS and its approach to risk-based supervision
• Insurance Core Principles for effective supervision
• Update on standard setting work across the IAIS• ComFrame (Common Framework for the
supervision of Internationally Active Insurance Groups)
3Cape Town5 March 2010
Introduction of the IAIS and its approach to Introduction of the IAIS and its approach to risk-based supervisionrisk-based supervision
• Founded in 1994• Represents insurance regulators and supervisors• World wide membership• 204 Members (including 56 US Members) • 131 Observers (including 10 international
organisations)• Observers participate actively• Secretariat based in Basel, Switzerland
4Cape Town5 March 2010
Introduction of the IAIS and its approach to Introduction of the IAIS and its approach to risk-based supervisionrisk-based supervision
Improved supervision
Well-regulated and well-supervised insurance markets
Global financial stability
Efficient, fair, safe and stable insurance markets
Policyholder protection
5Cape Town5 March 2010
Introduction of the IAIS and its approach to Introduction of the IAIS and its approach to risk-based supervisionrisk-based supervision
Develop standards, principles, guidance
Encourage implementation of
principles and standards
Develop assessment
methodologies
Encourage co-operation amongst
insurance supervisors
Represent the field of
insurance supervision
Identify potential risks that may affect
insurance supervision
Cooperate with other
international organisations
6Cape Town5 March 2010
Introduction of the IAIS and its approach to Introduction of the IAIS and its approach to risk-based supervisionrisk-based supervision
7Cape Town5 March 2010
Introduction of the IAIS and its approach to Introduction of the IAIS and its approach to risk-based supervisionrisk-based supervision
General Meeting
Executive CommitteePeter Braumüller
Technical CommitteeAlfred Gross
Implementation Committee Hari Narayan
Budget CommitteeVictor Rod
Pension Coordination GroupMihály Erdos
Accounting SubcommitteeHenning Göbel
Governance and ComplianceMaarten Hage
Implementation Activities Approval Committee
Hari Narayan
Insurance Laws, Regulation,Practices & Standards Subcommittee
Francois Tempé
Regional Coordination SubcommitteeMichael Oliver
Task Force on InformationGathering & Analysis
Norma Rosas
Insurance Groups SubcommitteeAxel Oster
Insurance Contracts SubcommitteeRob Esson
ICP Task ForceKwok Mun Low
Market Conduct SubcommitteeDiane Colton
Reinsurance and other forms of Risk Transfer Subcommittee
Solvency & Actuarial Issues SubcommitteeRob Curtis
8Cape Town5 March 2010
OutlineOutline
• Introduction of the IAIS and its recent activities• Insurance Core Principles for effective
supervision• Update on standard setting work across the IAIS• ComFrame (Common Framework for the
supervision of Internationally Active Insurance Groups)
9Cape Town5 March 2010
Insurance Core PrinciplesInsurance Core Principles
Insurance Core Principles for effective supervision
• Is the foundation on which all standard setting activities of the IAIS build
• Provide a globally accepted framework for the regulation and supervision of the insurance sector
• Serves as a benchmark for insurance supervisors in all jurisdictions
10Cape Town5 March 2010
Insurance Core PrinciplesInsurance Core Principles
• Can be used – when establishing a supervisory regime or – for identifying areas in existing regimes that
need to be improved
• Self assessments• Compliance assessed by the IMF and the
World Bank (FSAPs)
11Cape Town5 March 2010
Insurance Core PrinciplesInsurance Core Principles
• Benchmark for insurance supervisors
• Used to establish new regimes
• Used to improve existing regimes
• Used in evaluation of supervisory regimes – FSAPs
• Applies to all insurers and reinsurers, but not intermediaries, unless indicated
Essential Principles
Assessment criteria
Explanatory notes
Essential criteria
Advanced criteria
12Cape Town5 March 2010
Insurance Core PrinciplesInsurance Core Principles
13Cape Town5 March 2010
Insurance Core PrinciplesInsurance Core Principles
Essential criteria• Elements necessary in the
implementation of ICPs
• Assessment criteria
Advanced criteria• Components which
improve essential criteria and enhance supervisory regime
• Not used in assessing ICPs observance
• BUT may be used to comment or make recommendations on supervisory framework
Observed All essential criteria observed
Largely observed
Only minor shortcomings exist
Partly observed
Despite progress, shortcomings sufficient to raise doubts
Not observed No substantive progress
Not applicable Not applicable due to structural/legal/ institutional features or responsibility with other authorities
14Cape Town5 March 2010
Currently being revised (with a completion date of 2011) to ensure they remain appropriate, comprehensive and current (subject to final approval)
Insurance Core PrinciplesInsurance Core Principles
15Cape Town5 March 2010
Mapping with existing ICPs to proposed ICPs (subject to final approval)
Insurance Core PrinciplesInsurance Core Principles
16Cape Town5 March 2010
Mapping with existing ICPs to proposed ICPs (subject to final approval)
Insurance Core PrinciplesInsurance Core Principles
17Cape Town5 March 2010
OutlineOutline
• Introduction of the IAIS and its recent activities• Insurance Core Principles for effective
supervision• Update on standard setting work across the
IAIS• ComFrame (Common Framework for the
supervision of Internationally Active Insurance Groups)
18Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
Preconditions
Regulatory requirements
Supervisory assessment
LEVEL 1
LEVEL 2
LEVEL 3 Supervisory assessment and intervention
Basic conditions for the effective functioning of
the insurance supervisory authority
the insurance sector and insurance supervision
Financial Governance Market conduct
Common Solvency Structure and Standards
Framework for Insurance Supervision
19Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Current issues in standard setting– A comprehensive and coherent set of supervisory
papers on insurance supervision– Appropriate balance between principles based
standards and adequate supporting guidance– Group-wide supervision– Proportionality– Financial stability– Promoting appropriate convergence towards
globally accepted, improved standard of supervisory practice
– Multilateral Memorandum of Understanding– Mutual recognition
20Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Solvency
– Structure of regulatory capital requirements (adopted in October 2008)
– ERM for capital adequacy and solvency purposes (adopted in October 2008)
– The use of internal models for regulatory capital purposes (adopted in October 2008)
– Issues paper on group solvency assessment (adopted in February 2009)
– Structure of capital resources for solvency purposes (to be adopted in October 2009)
21Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Solvency– Draft Standard and Guidance papers on
Capital Adequacy
• Combining Standard on capital requirements with
Standard on capital resources
• Further addressing group-level supervisions
• Solvency control level:
– PCR: the level above which the supervisor would not require action to increase the capital resources held or reduce the risks undertaken by the insurer
– MCR: defines the supervisory intervention point at which the supervisor would invoke its strongest actions, if further capital is not made available
22Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Solvency
– Draft Guidance paper on Enterprise Risk Management for Solvency Purposes (to be approved in Oct 2010)
• ORSA: The insurer should have risk and capital management
processes in place to monitor and manage the overall adequacy
of its financial resources relative to its economic capital and the
regulatory capital requirements set by the solvency regime and
clearly distinguish between current capital needs and its
projected future financial position.
• Taking into account post-crisis findings on ALM, cash flow
analysis and stress testing
• Liquidity management and asset liability management, with
particular regard to complex investment activities
• Strategies including derivatives, and applying both on solo and
group basis
23Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Solvency– Draft Standard and Guidance paper on Internal
Models for regulatory capital purposes
• Standard will now apply to both solo and groups.
• Focussing predominantly on the supervisory approval mechanisms and considerations and related interplay of the different modelling components of an overall group model
• Further, the balance to satisfy the needs and requirements of both home and host supervisors, particularly regarding: the approval process of the group internal model and differences in the level and structure of local capital requirements
24Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Solvency
– Draft Standard and Guidance paper on the regulatory requirements for Investments for solvency purposes (to be approved in Oct 2010)
• Requirement 1:
The solvency regime establishes requirements that are applicable to the investment activities of the insurer
• Requirement 2:
The solvency regime is open and transparent as to the regulatory investment requirements that apply and is explicit about the objectives of those requirements.
• Requirement 3:
The regulatory investment requirements address at a minimum, the: - Security; - Liquidity; and - Diversification; of an insurer’s portfolio of
investments as a whole
25Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Solvency– Draft Standard and Guidance paper on the
regulatory requirements for Investments for solvency purposes (to be approved in Oct 2010)
• Requirement 4:
The solvency regime requires the insurer to invest assets in a
manner which is appropriate to the nature of its liabilities
• Requirement 5:
The solvency regime requires the insurer to invest only in assets whose risks it can properly assess and manage.
• Requirement 6:
The solvency regime establishes quantitative and qualitative requirements, where appropriate, on the use of more complex and less transparent classes of assets and investment in markets or instruments that are subject to less governance or regulation.
26Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Solvency– Draft Standard on valuation of assets and
liabilities for solvency purposes • Undertaken by a joint working group (“Joint Valuation Working
Group”) between the SSC and ICSC
• The valuation of assets and of liabilities is undertaken on consistent bases and in a reliable and transparent manner
• The valuation of assets and liabilities is an economic valuation and an economic valuation of assets and liabilities reflects the risk-adjusted present values of their cash flows.
• The value of technical provisions and other liabilities do not reflect the insurer’s own credit standing
• Margin over the Current Estimate (MOCE)
• Requires the valuation of technical provisions to make appropriate allowance for embedded options and guarantees.
27Cape Town5 March 2010
Update on Solvency Standards and Update on Solvency Standards and GuidanceGuidance
ISRs: a comprehensive and cohesive set of solvency ISRs: a comprehensive and cohesive set of solvency assessment documentationassessment documentation
28Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Groups– Guidance paper on use of supervisory colleges (adopted in 2009)
– Guidance paper on the treatment of non-regulated entities in group-wide supervision (to be adopted in 2010)
– Draft standard on cross-border cooperation on crisis management (to be adopted in 2010)
– Issues paper for resolution of cross-border entities (targeting 2011)
– Draft definition of insurance group - a preliminary proposed in 2010
– Guidance paper on Group-wide Supervision Framework (to be adopted in 2010)
– Guidance paper on Criteria for equivalence assessment/Supervisory recognition in group-wide supervision (to be adopted in 2011)
– Questionnaire for issues paper on supervisory resolution of cross-border entities (Target to release to all members in 2010)
– Follow-up survey on supervisory colleges (Target to release to all members and observers in 2010)
29Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Governance
– ICP, standard and guidance on Licensing (to be adopted in 2010)
– Draft standards and guidance on remuneration (to be adopted in 2010)
– Issues paper on the regulation and supervision of mutuals, cooperatives and other community-based organisations in increasing access to insurance markets (to be adopted in 2010)
– Work closely with the OECD Insurance and Private Pensions Committee and its Corporate Governance Task Force to avoid duplication of effort and to ensure consistency
– Coordinating with the Basel Committee on Banking Supervision to ensure consistent messages are communicated for the banking and insurance industries.
30Cape Town5 March 2010
Update on standard setting work across the Update on standard setting work across the IAISIAIS
• Reinsurance
– IAIS Global Reinsurance Market Report (GRMR),
– Planning macroprudential surveillance and potential steps towards an expansion of the Reinsurance Transparency Subgroup (RTG)
– Draft Guidance Paper on Reinsurance and other forms of risk transfer (targeting 2010)
– Mutual Recognition (Guidance October 2008 Standard possibly 2010)
31Cape Town5 March 2010
OutlineOutline
• Introduction of the IAIS and its recent activities• Insurance Core Principles for effective
supervision• Update on standard setting work across the IAIS• Lessons learned from the recent financial crisis• ComFrame (Common Framework for the
supervision of Internationally Active Insurance Groups)
32Cape Town5 March 2010
What is ComFrame?What is ComFrame?
• ComFrame is intended to provide supervisors with a supervisory framework for internationally active insurance groups
• ComFrame will be multilateral in nature because it will set out common parameters for insurance group supervision for multiple jurisdictions, thus going beyond individual national or regional regulatory approaches
• It will provide a basis of operation for both home and host supervisors
• Substantively, it will set out parameters for assessing the group structure and the group business from a risk management perspective as well as quantitative and qualitative requirements that are specific and focused but not rules-based
• It will also cover the area of necessary cooperation among supervisors
33Cape Town5 March 2010
General principles of ComFrameGeneral principles of ComFrame
ComFrame should:
become the multilateral tool of preference for assessing internationally active insurance groups
provide meaningful value to both home and host supervisors for undertaking group supervision
be developed through the use of existing Working Parties, complemented were needed by ad-hoc groups, under the steering of the ComFrame Task Force and the policy oversight of the Executive Committee, in consultation with the Technical Committee
be made up of Modules each including a specific group of Elements
34Cape Town5 March 2010
General principles of ComFrame (Cont.)General principles of ComFrame (Cont.)
be specific, but not rules-based
be ever-evolving (and further look into case experiences)
be developed in close collaboration with interested stakeholders
lead to more consistency and better comparability and alignment regarding the supervision of internationally active insurance groups being undertaken by each jurisdiction
35Cape Town5 March 2010
TimelineTimeline
36Cape Town5 March 2010 36
Organisational overviewOrganisational overview
37Cape Town5 March 2010
The Five Modules of ComFrameThe Five Modules of ComFrame
38Cape Town5 March 2010
Module 1Module 1
ComFrame should look at internationally active insurance groups as a whole and assess their group-wide risks
39Cape Town5 March 2010
Module 1Module 1
Module 1: Scope of application
Module 1 Contents Priorities
Basics Definition of a “group”
Element 1 Application to internationally active insurance groups A
Element 2 Scope of internationally active insurance groups A
Element 3 Conglomerate ramifications Cross-sectoral cooperation protocols and rules
B
Element 4 Conglomerate ramifications Cross-sectoral harmonisation regarding certain substantive rules and requirements
B
Element 5 Conglomerate ramifications Criteria for determining the cross-sectoral “group-wide supervisor”
B
40Cape Town5 March 2010
Module 2Module 2
ComFrame should provide better approaches to monitor and, if needed, administer or control group structure and business from the perspective of identifying risks and implementing safeguards where necessary, taking into account normal, stress and resolution situations
41Cape Town5 March 2010
Module 2Module 2
Module 2: Group structure and business in normal, stress and resolution situations
Module 2 Contents Priorities
Basics N.A.
Preventive Mode (Normal Mode)
Element 1 Monitoring and assessing group structures B
Element 2 Assessment of the group’s business mix from the perspective of reducing risk and enhancing transparency
B
Element 3 Assessment of changes to a group’s business and its structure resulting from business decisions and transactions
B
Element 4 Assessment of intra-group transactions B
Stress Mode
Element 5 Contingency planning for stress conditions (Flexibility in changing the group’s structure and business)
B
Element 6 Protocol and/or rules on crisis management by groups B
Resolution Mode
Element 7 Resolution mechanisms from a group structure and business perspective
C
Element 8 Approaches regarding policyholder protection schemes and tied assets
C
42Cape Town5 March 2010
Module 3Module 3
ComFrame should set out both quantitative and qualitative requirements that are specific and focused but not rules-based
43Cape Town5 March 2010
Module 3Module 3
Module 3: Quantitative and qualitative requirements
Module 3 Contents Priorities
Basics Quantitative and qualitative recommendations for groups
Element 1 Quantitative framework/methodologies B
Element 2 Qualitative framework /methodologies B
Element 3 Calibrations and specific measurements regarding quantitative elements
After 36 months
Element 4 Approaches to utilise these benchmarks/parameters for supervisory recognition
C
44Cape Town5 March 2010
Module 4Module 4
ComFrame should be made effective by utilising supervisory cooperation mechanisms
45Cape Town5 March 2010
Module 4Module 4
Module 4: Supervisory cooperation and interaction
Module 4 Contents Priorities
Basics Basic definition of supervisory cooperation including information exchange
Element 1 Approaches regarding supervisory cooperation between group-wide supervisor and host supervisors
B
Element 2 Approaches on the use of supervisory colleges B
Element 3 Protocol on the reliance on supervisory actions/decisions of supervisors of other jurisdictions
B
Element 4 Crisis management among supervisors B
Element 5 List of supervisory reporting items B
Element 6 List of public disclosure items B
46Cape Town5 March 2010
Module 5Module 5
ComFrame should be operated in a transparent way
47Cape Town5 March 2010
Module 5Module 5
Module 5: Jurisdictional matters
Module 5 Contents Priorities
Basics Use of ICPs and effectiveness of FSAPs
Element 1a Applicability of ComFrame to all IAIS jurisdictions B to C
Element 1b Opt-in mechanism B to C
Element 2 Peer review and peer assistance mechanism B to C
Element 3 ComFrame data compilation platform (or mechanism) for macroprudential surveillance purposes
48Cape Town5 March 2010
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