Insurance capital rules progress stalls in transatlantic spat

Officials say rules delay is a result of contradicting capital calculation approaches

Insurance capital rules progress stalls in transatlantic spat

Insurance News

By Lyle Adriano

Work on an International Capital Standard (ICS) for insurers worldwide has been put on hold, as transatlantic disagreements appear to delay the rules’ development.

Four years have been spent establishing a proper ICS, which would allow investors and policyholders to compare insurers from around the world. But experts think there is more to the ICS’s delay than just red tape.

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“The sense is there has been a collective pause around the ICS following elections in the United States and the European Union, as well as Brexit,” National Association of Insurance Commissioners (NAIC) CEO Mike Consedine told Reuters.

The slow progress has some experts thinking that regulators will tell insurers that the implementation process will be put on hold as the industry meets in Kuala Lumpur this November.

Association of British Insurers director of regulation Hugh Savill commented that the ICS lacked enough political support to see it through to implementation.

“There is a serious stalemate, and I see us no nearer agreement than two years ago,” Savill added.

Other industry experts also hit out.

“It’s a mess. The US won’t play and the ICS is going nowhere,” the CEO of a European insurer said. “I don’t think you will get a material change in global capital because nobody can afford it.”

“There is no question that arriving at an ICS that achieves greater convergence than that of the different group capital standards adopted in different jurisdictions and regions is a challenging task,” said Victoria Saporta, Bank of England executive director and chair of the International Association of Insurance Supervisors (IAIS), which writes the ICS.

“But it is also a necessary one if policyholders of international groups are to be better protected, while also enjoying the more inclusive offering that can result from the greater capital efficiencies of international diversification.”

The IAIS has yet to establish a unified approach to calculating the amount of capital the world’s top insurers will have to hold, but it is testing two approaches for valuing liabilities: one approach modeled after US accounting rules, and the other based on the EU’s Solvency II capital rules.

While a step in the right direction, without definitive adjustments established, the two approaches would come up with completely different capital requirements.

“Is there a bridge between US accounting and Europe’s Solvency II? There is none that is economically sound,” commented Allianz head of regulatory strategy Tobias Buecheler. “It’s unclear how those approaches can be combined, aligned. You have a divide between the United States and Europe.”

Complicating matters is that both the US and the EU have announced plans to write new accounting and capital rules, with both sides insisting that the ICS should accommodate one over the other.

“We have stressed the need previously for the ICS to be principles-based and to give countries a certain level of jurisdictional flexibility. That’s going to be critical for the United States,” said Consedine.

“There are more goalposts and they are all moving, that is the problem,” stated Buecheler.

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