The Rise of Global Standards

and How Insurers Can Comply

Introduction
The financial crisis of 2008 highlighted
the need to strengthen the supervision
and control of financial institutions
designated as “Too Big to Fail”. At
the November 2010 Summit meeting
in Seoul, the G20 leaders endorsed a
report by the Financial Stability Board
(FSB) on reducing the moral hazard
posed by Global Systemically Important
Financial Institutions (G-SIFIs) by
proactively identifying such firms and
taking measures to lower the impact
associated with their failure.1
2
As part of this global initiative, greater
focus has been placed on potential
Global Systemically Important Insurers
(G-SIIs). A first list of nine firms,
comprising insurance companies with
home jurisdictions in the US, Europe
and China, was published in July 2013
(with no adjustments made to the
November 2014 release), including a
description of the methodology used
to qualify an insurer as a G-SII.2 This
methodology was published along with
a package of measures intended to
be applied to the mentioned G-SIIs.
The work of the International
Association of Insurance Supervisors
(IAIS),3 responsible for developing
these G-SII measures, also includes
additional requirements targeting
international insurance groups.
In our view, the G-SII requirements
are one key feature of a new global
regulatory landscape intended to promote
a common supervisory framework, thus
helping to improve the effectiveness and
consistency of insurance regulations.
We see the advent of a global insurance
regulatory architecture as a major
challenge, both for supervisors and
insurers. This document will explore
the impacts on insurers and how they
can respond to these developments
based on current regulatory drafts.
Do Insurers Pose Systemic Danger?
The financial crisis helped confirm
the overall resilience and strength of
the insurance business model. It also
demonstrated that the systemic relevance
of insurance groups is correlated
with activities outside the traditional
insurance business field.4 As a result, the
International Association of Insurance
Supervisors (IAIS) has taken the initiative
of defining the sources of systemic risk,
due mainly to non-traditional insurance
and non-insurance (NTNI) activities,
or as a result of interconnectedness
(the extent to which an activity and/
or product is linked to the financial
markets. Other considerations include
the institution’s size, global activity
and its “substitutability” which is its
capacity to continue providing services
(in this case, insurance coverage)
following the failure of an entity.
NTNI activities can include leveraging,
liquidity or maturity transformation,
imperfect credit risk transfers such as
“shadow banking” and credit guarantees
or minimum financial guarantees. Such
activities often involve products that
are more complex than traditional
insurance products, thus shifting
financial market risk to insurers. Figure
1 below illustrates major traditional
and non-traditional insurance activities
as well as non-insurance activities.
As mentioned, nine insurance groups
were identified by the FSB as global
systemically important insurers
(G-SIIs) in July of 2013, based upon
the IAIS’s definition of sources of
systemic risk and NTNI activities.
Beyond the G-SII designation, the IAIS
developed an internationally coherent
framework for the supervision of
large, complex and global groups.5
This framework is not dependent
on whether or not an insurance
group is systemically important.

Figure 1. Major traditional, non-traditional and non-insurance activities

Traditional Activities Non-traditional Activities

- Life insurance and variable annuities - Alternative risk transfer, including

- Most life and non-life with additional guarantees insurance-linked securities
Underwriting
(re)insurance business lines - Mortgage guarantee insurance - Financial guarantee insurance
- Trade credit insurance - Finite reinsurance
Insurance
Activities

- Proprietary investment function
(asset liability management - ALM)
Investment
and Funding - Hedging for ALM
- Funding through equity and debt
issues, and securities lending
- Proprietary and derivatives trading - Purely synthetic investment portfolios
(non-ALM) - Cascades of repos and securities lending
- Property management (as it - Scope and scale of activities beyond
relates to an investment portfolio) insurance remit

- Credit default swaps (CDS) and collateral debt obligations underwriting

- Capital market business
Non-insurance
- Banking, investment banking and hedge fund activities
Activities
- Third-party asset management
- Industrial activities

Source: “Insurance and Financial Stability,” International Association of Insurance Supervisors, November 2011. Access at: http://forinsurer.com/files/file00400.pdf

Free Giveaway!!
Hey I am giving away Survival Kit for Free!! Click here.

3
The New Global Insurance Regulatory Landscape
Figure 2 on the next page illustrates
the relationships between the three
types of requirements that apply to
insurers depending on their activities,
size and systemic importance: the IAIS
Insurance Core Principles6 (ICPs), the
Common Framework for the Supervision
of Internationally Active Insurance
Groups7 (ComFrame), and the Global
Systemically Important Insurers package.8
• The ICPs standards and guidance
apply to all insurers and insurance
groups, regardless of size, international
activities or systemic importance.
New Qualitative Requirements
The ICPs are the global standards for the
supervision of the insurance sector. They
are structured to allow a wide range of
regulatory approaches and supervisory
processes to suit both the different
markets and the insurance entities and
groups operating within these markets.
ComFrame is built, and expands upon,
the high-level requirements and guidance
currently set out in the ICPs. This
framework is not concerned with whether
or not an insurance group is systemically
important. The key criteria here, as seen
in Figure 3, are whether the insurer has
worldwide activities and, if so, what is
the scope of those activities. As a result,
the IAIS expects that approximately 50
IAIGs will be identified by supervisors.10
4
• ComFrame is a set of international
supervisory requirements focusing
on the effective group-wide
supervision of internationally
active insurance groups (IAIGs).
• G-SII policy measures should apply
only to designated G-SIIs, and should
be appropriate for the risks that
G-SIIs pose to the financial system.
ICPs should apply to all insurers when
capital requirements and other measures
vary based on whether an institution is
deemed an IAIG or G-SII. IAIGs would
be subject to ComFrame and its
ComFrame would require from
insurers a set of measures
derived from Enterprise Risk
Management (ERM) including:11
• Moving from a silo approach (with
each business unit identifying and
treating risks independently) to a
portfolio approach (with business
units cooperating within a common
risk management framework);
• Moving from a reactive risk
management approach to a
proactive approach, aligned with the
company’s overall strategy through
an explicit risk appetite statement
and explicit risk limits; and
• Extension of the board’s
responsibilities.
The IAIS framework for G-SIIs
has three key policy areas:12
1. Enhanced Supervision – Enhanced
supervision applies immediately to
all G-SIIs. This involves specifically
targeted regulation, greater
supervisory resources and bolder use
of existing supervisory tools than is
the case with supervision of non-
systemically important insurers.
capital adequacy component, known
as Insurance Capital Standards (ICS),
and G-SIIs would have to cope with
all quantitative requirements. These
include Basic Capital Requirement (BCR),
Higher Loss Absorbency (HLA) and ICS
plus the G-SII Policy Measures’ specific
qualitative requirements in addition to
the ComFrame and ICP requirements.
Note that the IAIS is responsible for
setting out the criteria and process used
by supervisory colleges to identify IAIGs
and that the national regulators have
discretion to determine whether an
insurance group qualifies as an IAIG.9
2. Effective Resolution – Effective
resolution requirements aim to
ensure that the resolution of G-SIIs
could take place without severe
systemic disruption and without
increasing taxpayers’ exposure
to loss. The resolution should be
carried out in a way that does not
slow down existing policyholder
protection schemes. Building on
the key attributes indicated by the
FSB, the IAIS promotes four main
requirements in effective resolution.
3. Higher Loss Absorbency (HLA) -
The IAIS was committed to develop
“straightforward backstop capital
requirements” to apply to all G-SIIs.
The provision of additional capital is
intended to help reduce the probability
and impact on the global financial
system in case of G-SII failures.
Figure 2. Global regulatory framework affecting insurers, specifically G-SIIs and IAIGs
Type of
requirements

All Insurers
ICPs (Individual/Group)
ComFrame expands on ICPs Qualitative

ComFrame
IAIGs
≈ 50 groups identified
Capital Adequacy ICS
Component of ComFrame
HLA Quantitative
Capital Requirements
for G-SIIs
BCR

G-SIIs
= 9 groups identified
Effective Resolution
G-SII Policy Measures Qualitative
Enhanced Supervision

G-SII Global Systemically Important Insurer BCR Basic Capital Requirement ICS Insurance Capital Standard
IAIG Internationally Active Insurance Group HLA Higher Loss Absorbency ICPs Insurance Core Principles

Source: “10th Annual Insurance Public Policy Summit, Confronting New Challenges in U.S. and International Regulation,” Institute of International Finance, March 12, 2014.
Access at: http://indstate.edu/business/NFI/events/10AIPPS/docs/Insurance%20Portilla%20IIF.pptx

Figure 3. Criteria used by IAIS for classifying IAIGs

International Activity Size (based on a rolling three-year average)

- Premiums are written in no fewer than three jurisdictions, and - Total assets of $50 billion US or more, or
- Percentage of gross premiums written outside the home jurisdiction - Gross written premiums of $10 billion US or more
is not less than 10% of the group’s total gross written premiums

Source: “Frequently Asked Questions for the IAIS Common Framework for the Supervision of Internationally Active
Insurance Groups (ComFrame),” International Association of Insurance Supervisors, Updated December 17, 2014.
Access at: http://iaisweb.org/index.cfm?event=openFile&nodeId=41664

The application matrix below summarizes the requirements by type of insurer

Apply to…  BCR HLA ICS ComFrame ICPs

G-SII

IAIG

All Other Insurers

G-SII Global Systemically Important Insurer BCR Basic Capital Requirement ICS Insurance Capital Standard
IAIG Internationally Active Insurance Group HLA Higher Loss Absorbency ICPs Insurance Core Principles

Source: “10th Annual Insurance Public Policy Summit, Confronting New Challenges in U.S. and International Regulation,” Institute of International Finance, March 12, 2014. 
Access at: http://indstate.edu/business/NFI/events/10AIPPS/docs/Insurance%20Portilla%20IIF.pptx

5
Focus on G-SII Qualitative Requirements
The items listed below represent only
one part of the G-SII requirements,
but, in our view, they would require
more attention and a greater
investment on the part of the affected
institutions in the years to come.
For a complete description of the requirements
see: “Global Systemically Important Insurers: Policy
Measures,” International Association of Insurance
Supervisors, July 18, 2013. Access at: http://iaisweb.
org/index.cfm?event=openFile&nodeId=34256.
Systemic Risk Management
Plan (SRMP)
G-SIIs should be expected to start work
with their group wide supervisor in
developing a SRMP. The SRMP describes
how the G-SII would manage, mitigate
and reduce its systemic risk. The SRMP
should include the actions the G-SII
will take to either reduce systemic risks
or to mitigate those risks. It should
also describe the GSII’s enterprise
risk management framework and the
control framework that is in place to
effectively mitigate these systemic risks.
New Quantitative Requirements
We expect that the BCR (basic capital
requirement, formerly known as backstop
capital requirement) calculation
methodology that follows may be
modified in the future, as supervisors
and IAIGs are presently in a testing
and refinement phase (see page 12).
The BCR is the foundation for the HLA
calculation and could be ultimately
replaced by the ICS. Figure 4 identifies
the insurance groups covered, and
the steps or order of the definitions
used in developing the different
capital standards requirements.
Free Giveaway!!
6
Hey I am giving away Survival Kit for Free!! Click here.
Effective separation of
NTNI activities
The group-wide supervisor may ask the
G-SII to apply effective separation of
NTNI activities to help reduce or mitigate
systemic risks. The approach should be
defined in the SRMP, and developed
by the G-SII in collaboration with the
group supervisors. The question of what
constitutes effective separation is a
critical supervisory policy issue. Whether
or not NTNI activities are effectively
separated could directly affect the
resolvability of this question and may
affect the calculation of higher loss
absorption to be applied to the G-SII. As
per the requirement, a G-SII should meet
the following five regulatory standards, as
applied by the group-wide supervisor, in
order to be deemed effectively separated:
1. An effectively separated entity
(subsidiary or affiliate) should be
self-sufficient to the degree that
it can operate without the support
of the parent or affiliates.
2. The separated entity’s governance
framework should ensure the
operational independence
of management (including
risk management).
Figure 4. Chronology in developing capital standards requirements
Macro-order in
developing the standards BCR
G-SII 1 2
IAIG x x
Source: Accenture analysis of publicly available documents
3. Separation should not result in
non-regulated financial entities.
4. Intra-group transactions or
commitments with the separated
entity should be at arm’s length.
5. Reputational risks that could result
in the parent or an affiliate providing
financial support to the separated
entity should be mitigated.
The elaboration of Recovery
and Resolution Plans (RRPs)
There should be an ongoing process
for recovery and resolution planning,
covering, at a minimum, the domestically
incorporated firms that could be
systemically significant or critical if they
fail. The firm’s senior management would
be responsible for providing the necessary
inputs to the resolution authorities
for (i) the assessment of the recovery
plans; and (ii) the preparation by the
resolution authority of resolution plans.
The goal of RRPs should be to maintain
or restore the business in a sustainable
way in the event of financial distress.
HLA ICS
3
7
Basic Capital Requirement (BCR)
At the moment, a factor-based BCR Ratio = Total Qualifying
approach consisting of 15 risk Capital Resources (for BCR) /
measures is used to calculate BCR.13 Required Capital (for BCR)
This approach helps employ a simple
structure that can be applied to all The approach for calculating required
insurance groups while maintaining capital should take into account
transparency into the 15 risk measures. the risks derived from these five
major activity groupings: an insurer’s
An insurance group’s BCR amount traditional life and non-life insurance
can be identified using its BCR (TL, TNL), non-traditional activities (NT),
Ratio which is defined as: assets (A) and non-insurance (NI).

Figure 5. BCR required capital calculation methodology

Where:

- α (alpha) is the scalar (initially set at 100%)

4 4 4 3 n
to determine the overall BCR level13
BCR Required Capital = α ai TLi + bi TNLi + ci NTi + di Ai + NIi - ai, bi, ci and di represent the factors applied to
the exposures
i=1 i=1 i=1 i=1 i=1
- TLi, TNLi, NTi, and Ai represent the exposures

- NI reflects the charges provided by sectoral

TL Traditional life NT Non-traditional
rules for non-insurance activities, for
TNL Traditional non-life A Asset
example, Basel Accord requirements,
established by the BCBS
Source: “Basic Capital Requirements for Global Systemically Important Insurers,” International Association of Insurance
Supervisors, October 23, 2014. Access at: http://j7.agefi.fr/documents/liens/201410/24-YVSQBZCIUQXEXMN.pdf

Qualifying capital resources are

determined on a consolidated basis,
with possible adjustments as required.
Qualifying capital resources may be
classified as either core or additional
capital. Having two categories of
qualifying capital resources would provide
insurers with the option of defining a
number of potential BCR Ratios such as:14

• BCR Core Ratio defined as: Core

Capital/Required Capital

• BCR Total Ratio defined as: Total

Capital/Required Capital

8
9
Higher Loss Absorbency (HLA)15
Targeted HLA Capacity (step 1) –
to the extent the G-SII has demonstrated
effective separation of NTNI
activities from traditional insurance
activities, targeted HLA would be
applied to the separate entities.
Insurance Capital Standard (ICS)
The following excerpt from a
blog published by John Morley,
Managing Director at Accenture,
provides additional insight into
the challenges surrounding ICS.
The big ICS challenge will be
developing a “normalised” balance
sheet and capital model that
makes sense across the nine G-SIIs
and 40 plus IAIGs under multiple
GAAPs and business profiles. This
is the key technical challenge.
Whilst an approach to the assets
can (be) tackled the normalising of
Insurance liabilities will be the true
test. Interestingly the consultation
has questions covering an internal
model approach. However, given the
timeframe, number and diversity
of impacted companies it would be
safe to conclude that this is not a
feasible option, especially when we
view the Solvency II experience.
Free Giveaway!!
10 Hey I am giving away Survival Kit for Free!! Click here.
Group-wide HLA Capacity (step
2) – whether or not NTNI activities
have been separated, an overall
assessment of group-wide HLA needed
should be undertaken and the group-
wide supervisor could determine
whether the HLA capacity held at the
dedicated NTNI entities is sufficient
or needs to be further increased.
Additionally, as the ICS will replace
the BCR we can expect that the
most likely outcome for the capital
charge is a factor-based approach
like the BCR. We could expect more
granularity, some additional sub-
sets of calculation and perhaps a
stronger integration of diversification
benefits. It will be interesting to see
at what level the ICS capital charge
will “bite” and what message that
will give to the national regulator
whose home solvency capital basis
was not enough for their IAIG. Like
the BCR it makes sense to leave
calibration until the final stages.
Source: “Another Insurance Capital Standards?
Getting to grips with the ICS,” John Morley,
Accenture, February 14, 2015. Access at: https://
www.linkedin.com/pulse/another-insurance-
capitals-standard-getting-grips-ics-john-morley
Figure 6. Overview of global capital standards requirements
BCR
Basic Capital Requirement
Objective Serve as a comparable prudential
floor, an early warning indicator,
a minimum capital standard
Nature Basic (formerly “backstop”)
capital requirement
General
Developer IAIS
Sponsor FSB
Application Only to G-SIIs and at consolidated
group-wide level
Inter-linkage The BCR is the foundation for HLA (and
the BCR calibration may be modified
depending on the HLA requirements)
Links
Articulation Balance sheet (B/S) valuation compatible
with Solvency II with Solvency II (S2) (Market-Adjusted
Valuation Approach, starting with IFRS or
GAAP, and making adjustments to major
B/S items) factor-based approach similar
to S2 Minimum Capital Requirements
Public/Private Initial phase of annual confidential
reporting to group-wide supervisor from
2015-18, public reporting to follow
Scope of risks Main risks (assets, liabilities and off-
B/S exposures) on three components
(insurance, banking, other non-insurance
Technical details
financial activities not currently subject
to regulatory capital requirements, with
a further fourth component covering
other material non-financial activities)
Design Simple design and presentation (limits:
no explicit recognition of Asset Liability
Management (ALM), implicit diversification,
reinsurance to be clarified)
Capital BCR can be covered by core and
adequacy additional capital (max 50/50)
First steps Consultation (December 2013 – February 2014) Publication of principles (September 2014)
Field Test (March 2014 – May 2014)
Consultation (July 2014 – August 2014)
Publication of BCR design (October 2014)
Endorsement by G20 (November 2014)
Next steps As of 2015, reviewing and refining
Milestones
of BCR along with first reporting
Finalization
Implementation From 2015 to 2019
Source: Accenture analysis of future global capital standards based on publicly available IAIS and FSB documents
HLA ICS
Higher Loss Absorbency International Capital Standard
Internalize the costs on the financial Contribute to the stability of the financial
system that a G-SII would have system and the protection of consumers
in case of a potential failure
Additional level of capital in relation to a A measure of capital adequacy
G-SII’s systemic activities (i.e. G-SIIs will and will constitute the minimum
be required to hold capital > BCR + HLA) standard to be achieved
IAIS IAIS
FSB IAIS
Only to G-SIIs and at consolidated All IAIGs (including G-SIIs) and at
group-wide level consolidated group-wide level
The HLA will build on the BCR (The BCR will The ICS is the foundation for HLA,
serve as the comparable foundation for HLA. initially the BCR (ICS is the quantitative
When the ICS is finalized, it will replace the part of the ComFrame initiative)
BCR in its role as the foundation for HLA)
B/S valuation compatible with S2 and To be confirmed
resembling S2 Solvency Capital Requirement
Transparency with regard to the final results Disclosure of the final results
Drivers of G-SII assessment with All material risks (including non-insurance
capital uplift on NTNI activities risks and off-B/S activities). It is expected
(non-traditional, non-insurance) that a more comprehensive approach will be
adopted for ICS development than for BCR
Pragmatic, practical design (appropriate Appropriate balance between risk sensitivity
balance between granularity and simplicity) and simplicity (explicit treatment of
diversification and ALM to be explored)
HLA can be covered by Tiering approach for qualifying
highest quality capital capital resources
Consultation (October 2013 – December 2013)
HLA Consultation (December 2014 – Publication of principles (September 2014)
February 2015) Revised ComFrame draft (September 2014)
ICS Consultation (December 2014 –
February 2015)
Field Test (March 2015 – September 2015) Field Test (April 2015 – June 2015)
Release of initial HLA consultation ComFrame Consultation (December 2015)
document (mid-2015) Field Test (April 2016 – June 2016)
Confidential reporting (2017-2018)
HLA proposal to be endorsed by Finalization (December 2016)
G20 in December of 2015 Consultation and Refinement (December 2017)
IAIS formal adoption (Q4 2018)
From 2019 From 2019
11
 Effects on Insurers’ Agendas:
Expected Implementation Timeline
The timeline for implementing some It was anticipated that the BCR would The IAIS is committed to develop the ICS
of these measures are both ambitious be applied to G-SIIs as of January by the end of 2016. Full implementation
and uncertain. For example, G-SII 2015. When this happens, it is likely to is scheduled to begin in 2019 after
measures on enhanced supervision influence the development of two other two years of testing and refinement
(including development of the Systemic capital standards planned by the IAIS:17 with supervisors and IAIGs.18
Risk Management Plan) should have
been implemented by now.16 • The HLA, the additional capital Figure 7 below presents a timeline
requirement for G-SIIs, and of when key measures could be
In addition, G-SII measures on effective expected to impact G-SIIs and IAIGs.
resolution (including recovery and • ICS for IAIGs
resolution plans or RRPs) should have
also been developed and agreed by crisis
management groups (CMGs) as they
were expected by the end of 2014.

Figure 7. High-level global capital standards roadmap

... 2013 2014 2015 2016 2017 2018 ...

Publication of 1st G-SII Basic Capital Requirement Higher Loss Absorbency

list and methodology (BCR) + republished G-SII list Proposal (HLA)
G-SII Package

Consultation Consultation Consultation

BCR BCR HLA
CMG established
+ SRMP completed RRP BCR reporting HLA Application

FT FT FT

Global Insurance Capital Standard (ICS) for IAIGs Full adoption of ComFrame/ICS
IAIG Package

Consultation Consultation Consultation Consultation

ComFrame ICS and Resolution ComFrame/ICS ComFrame/ICS

ICS

FT ICS FT ICS FT ICS

Standard development by standard-setters Standard development milestone

Implementation of required changes by insurance companies Standard implementation milestone

CMG Crisis Management Group FT Field Testing

SRMP Systemic Risk Management Plan G-SII Global Systemically Important Insurer
RRP Recovery and Resolution Plan IAIG Internationally Active Insurance Group
Status as of May 2015
Source: Accenture analysis based on publicly available IAIS, IASB, FSB documents

Free Giveaway!!
Hey I am giving away Survival Kit for Free!! Click here.
12
The Specific Case of Reinsurance
The decision to include some reinsurers
within the list of G-SIIs has been
postponed several times. Even if
traditional insurance activities are
not considered as either generating or
amplifying systemic risk, the question
Effects on Insurers and How
They Should Respond
Insurers have taken different positions on
new global standards; some are waiting
for more information before taking a
stand, while others have already publicly
criticized the measures.20 They argue that
these new measures should be aligned
with other regimes (Solvency II in the EU)
that have required hard, extensive work
to stabilize. In addition, they say that
these requirements may have a negative
impact on the insurer’s business model,
by requiring additional capital charges
at a time when insurers are already
facing difficult market conditions.
In our view, even if the new capital
regime is not yet stabilized, some key
aspects of the policy measures should
be highlighted—in particular those that
complement the Solvency II regime in
the EU—including the implementation of
the enhanced supervision and effective
resolution packages for G-SIIs.
As a first step, insurers should think
about their ability to identify their
NTNI activities, assess their alignment
with their risk strategy, and enhance
their ERM capabilities. Insurers should
not underestimate the amount of work
needed to implement these measures,
especially the steps related to identifying
whether reinsurers could create systemic
risk through non-insurance activities such
as writing collateralized debt securities or
CDSs is still on the table. At the moment,
the IAIS has postponed the decision, as
further study and analysis is required.19
NTNI activities, implementing the key
attributes and taking the corrective
actions called for as part of the ERM
framework. This, we believe, could
put even more pressure on actuarial,
finance and risk resources, and
increase the need to foster cooperation
between internal departments
and the regulatory supervisor.
Finally, the new capital measures may
require additional capital adequacy field
tests, scenario analysis and a comparison
with other regimes (particularly the
valuation question, maintaining
market consistency versus Generally
Accepted Accounting Principles and
expected adjustments to regulations).
These new sets of requirements could,
in our view, change the playing field
and create new opportunities for the
formation of subsidiaries, mergers and
acquisitions, and for the development
of new financial and asset liability
management strategies, among the
most-discussed areas. The sooner insurers
review these different requirements, the
more able they would be to anticipate
potential higher capital charges and
adjust their business models accordingly.
Responding to These
New Designations
In response to the new
G-SII designation, we have
observed institutions adopt
the following strategies:
1. Exiting strategy with institutions
reshaping their company
structure by carving out parts
of their business, or challenging
the designation in court.
2. Accommodation strategy with
institutions accepting the higher
capital requirements, policy
measures and committing to
comply with new designation.
3. Wait and see strategy with
institutions awaiting the IAIS’s
fine-tuning of the rules and
how these will be applied.
For financial institutions, the
best course of action may
be a combination of these
strategies. We suggest they
also consider field-testing and
actively communicating their
perspectives and thoughts
on the G-SII designation
with their local regulator.
13
Conclusion
Numerous studies and analysis indicate
that traditional insurance activities are
not a major source of systemic risk.21 Such
risks come mainly from NTNI activities
or as a result of interconnectedness
with other institutions.
Our understanding of the underlying
intentions of regulators and
global leaders is: to discourage the
development of NTNI activities and
interconnectedness by applying higher
capital charges; to minimize the impacts
of failure by developing effective
resolution plans; and to specifically
oversee systemic institutions. However
the G-SII initiative is only one part of
a global framework with the overall
goal of defining an insurance capital
standard which could be applied to
the entire global insurance industry.
This new capital standard is designed to
create a framework which would allow
for more effective cross-jurisdictional
regulatory supervision through the use of
a comparable base across all jurisdictions.
14
We believe insurers should keep a
close eye on the wide package of IAIS
measures. The development of this
comprehensive framework of reforms
involves more than just capital; it is
under way and may affect each insurer­—
whether a G-SII, an IAIG, a domestic
systematically important insurer (D-SII),
or one to be. The borders defining these
categories are not yet clearly defined
and could change based on current
developments. Even an institution’s
growing activity levels, expanding
international footprint and foray into
new businesses could make it eligible for
a G-SII and, or IAIG designation. We also
expect important increases in the level of
insurance supervision across the globe,
thus impacting institutions across regions.
Notes
1. G-SIFIs are defined by the Financial
Stability Board as “institutions
of such size, market importance,
and global interconnectedness
that their distress or failure would
cause significant dislocation in the
global financial system and adverse
economic consequences across a
range of countries.” G-SIIs are one
class of G-SIFIs. For more information
see “Global Systemically Important
Insurers: Policy Measures,” International
Association of Insurance Supervisors,
July 18, 2013. Access at: http://www.
fsa.go.jp/inter/iai/20130719/04.pdf
2. “Global systemically important insurers
(G-SIIs) and the policy measures
that will apply to them,” Financial
Stability Board, July 18, 2013. Access
at: http://www.financialstabilityboard.
org/wp-content/uploads/r_130718.
pdf?page_moved=1. “2014 update of
list of global systemically important
insurers (G-SIIs),” Financial Stability
Board, November 6, 2014. Access at:
http://www.financialstabilityboard.org/
wp-content/uploads/r_141106a.pdf
3. The International Association of
Insurance Supervisors (IAIS) is
responsible for developing the
assessment methodology while the
Financial Stability Board FSB is
responsible for designating the G-SIIs
based upon the IAIS methodology.
4. “Global Systemically Important Insurers:
Initial Assessment Methodology,”
International Association of
Insurance Supervisors, July 18,
2013. Access at: https://www.lloyds.
com/~/media/files/the%20market/
operating%20at%20lloyds/regulation/
gpa/final_initial_assessment_
methodology_18_july_2013.pdf
5. “Frequently Asked Questions for the IAIS
Common Framework for the Supervision
of Internationally Active Insurance
Groups (ComFrame),” International
Association of Insurance Supervisors,
Updated December 17, 2014.
Access at: http://iaisweb.org/index.
cfm?event=openFile&nodeId=41664
Free Giveaway!!
Hey I am giving away Survival Kit for Free!! Click here.
6. “Insurance Core Principles,
Standards, Guidance and Assessment
Methodology,” International Association
of Insurance Supervisors, October 1,
2011, revised October 19, 2013. Access
at: http://iaisweb.org/modules/icp/
assets/files/Insurance_Core_Principles__
Standards__Guidance_and_Assessment_
Methodology__October_2011__
revised_October_2013_.pdf.pdf
7. “Common Framework for the
Supervision of Internationally Active
Insurance Groups,” International
Association of Insurance Supervisors,
Revised DRAFT, September 2014.
Access at: http://iaisweb.org/index.
cfm?event=openFile&nodeId=34519
8. “10th Annual Insurance Public
Policy Summit, Confronting New
Challenges in U.S. and International
Regulation,” Andrés Portilla, Institute
of International Finance, March 12,
2014. Access at: http://indstate.edu/
business/NFI/events/10AIPPS/docs/
Insurance%20Portilla%20IIF.pptx
9. “Risk-based Global Insurance Capital
Standard,” International Association
of Insurance Supervisors, Public
Consultation Document, December
17, 2014. Access at: https://actuary-
pl.s3.amazonaws.com/Risk-based_
Global_Insurance_Capital_Standard_
Consultation_Document.pdf1.pdf?AWSA
ccessKeyId=AKIAIOW3KDG2CZARXGMA
&Expires=1433383943&Signature=SUF
X%2BYpGyQlkTGF3YjAgWwU2Vnw%3D
10. Ibid
11. “Common Framework for the
Supervision of Internationally Active
Insurance Groups,” International
Association of Insurance Supervisors,
Revised DRAFT, September 2014.
Access at: http://iaisweb.org/index.
cfm?event=openFile&nodeId=34519
12. “Global Systemically Important
Insurers: Policy Measures,”
International Association of
Insurance Supervisors, July 18, 2013.
Access at: http://iaisweb.org/index.
cfm?event=openFile&nodeId=34256
13. “Basic Capital Requirements forn
Global Systemically Important
Insurers,” International Association
of Insurance Supervisors, October
23, 2014. Access at: http://j7.agefi.
fr/documents/liens/201410/24-
YVSQBZCIUQXEXMN.pdf
14. Ibid
15. “Global Systemically Important
Insurers: Policy Measures,”
International Association of
Insurance Supervisors, July 18, 2013.
Access at: http://iaisweb.org/index.
cfm?event=openFile&nodeId=34256
16. “Frequently Asked Questions
for IAIS Financial Stability and
Macroprudential Policy and Surveillance
(MPS) Activities,” International
Association of Insurance Supervisors,
Updated December 17, 2014.
Access at: http://iaisweb.org/index.
cfm?event=openFile&nodeId=41690
17. “Basic Capital Requirements for Global
Systemically Important Insurers,”
International Association of Insurance
Supervisors, October 23, 2014.
Access at: http://iaisweb.org/index.
cfm?event=openFile&nodeId=34540
18. Ibid
19. “IAIS Releases Global Systemically
Important Insurers Assessment
Methodology and Policy Measures,
Macroprudential Policy and
Surveillance Framework,” International
Association of Insurance Supervisors,
newsletter. Access at: http://
newsletter.iaisweb.org/newsletterlink-
381?newsid=1087&call=1
20. “Aviva and Allianz CEOs criticise
‘regulatory tsunami’,” Insurance
ERM, February 28, 2014. Access at:
https://www.insuranceerm.com/news-
comment/aviva-and-allianz-ceos-
criticise-regulatory-tsunami.html
21. “Insurance and Financial Stability,”
International Association of Insurance
Supervisors, November 2011. Access at:
http://forinsurer.com/files/file00400.pdf
15
About the Authors
Eric Jeanne
Eric is a Managing Director – Risk
Management, based in Paris. He is
specialized in Risk Management and
Finance for the insurance industry, with
a focus on Enterprise Risk Management
framework, Solvency II and Risk and
Finance architecture. Eric has been with
Accenture for more than 15 years, leading
large transformation projects at major
insurance and reinsurance companies,
and helping clients transform their Risk
and Finance capabilities and processes.
Isabelle Pelletier
Isabelle is a Managing Director –
Accenture Finance & Risk Services
based in Paris. She is specialized in
Risk Management and Finance for
the insurance industry, with a focus
on Solvency II and Risk and Finance
processes. Isabelle has been with
Accenture for more than 10 years,
leading large Finance transformation
programs for international insurance
groups, helping clients transform their
risk capabilities and finance processes.
Fabien Oulmont
Fabien is a Senior Manager – Finance &
Risk Services, based in Paris. Specialized
in Finance and Risk matters for the
insurance industry, he works with clients
to transform their processes, methods,
tools and organization to drive value.
With a focus on major regulatory agendas
including Solvency II, he brings his
cross-functional and technical skills to
help insurers build, operationalize and
streamline their end-to-end financial
and prudential information capabilities.
Free Giveaway!!
Hey I am giving away Survival Kit for Free!! Click here.
Copyright © 2015 Accenture
All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.
About Accenture Stay Connected
Accenture is a global management Accenture Finance & Risk Services
consulting, technology services and www.accenture.com/microsites/
outsourcing company, with more than financeandrisk/Pages/index.aspx
323,000 people serving clients in
more than 120 countries. Combining
Connect With Us
unparalleled experience, comprehensive
www.linkedin.com/
capabilities across all industries and
groups?gid=3753715
business functions, and extensive
research on the world’s most successful Join Us
companies, Accenture collaborates www.facebook.com/accenturestrategy
with clients to help them become www.facebook.com/accenture
high-performance businesses and
governments. The company generated Follow Us
net revenues of US$30.0 billion for the www.twitter.com/accenture
fiscal year ended Aug. 31, 2014. Its
Watch Us
home page is www.accenture.com.
www.youtube.com/accenture
Disclaimer
This document is intended for general
informational purposes only and does not
take into account the reader’s specific
circumstances, and may not reflect the
most current developments. Accenture
disclaims, to the fullest extent permitted
by applicable law, any and all liability for
the accuracy and completeness of the
information in this document and for any
acts or omissions made based on such
information. Accenture does not provide
legal, regulatory, audit, or tax advice.
Readers are responsible for obtaining
such advice from their own legal counsel
or other licensed professionals.
15-1118