Regulators Agree Move to Scrap G-SIIs

Global regulators have announced they are set to scrap the designation of global systemically important insurers (G-SIIs) in two years’ time.

The International Association of Insurance Supervisors (IAIS) met in Abu Dhabi this week and as part of their discussion they have agreed to create a Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector, for implementation from the beginning of 2020.

The association said the move was part of the efforts to deliver “its commitment to contribute to global financial stability”.

“This framework recognises that systemic risk can arise both from sector-wide trends with regard to specific activities and exposures, as well as from a concentration of these activities and exposures in individual insurers,” said the IAIS. “The Holistic Framework consists of an enhanced set of supervisory policy measures and powers of intervention, an annual IAIS global monitoring exercise and collective discussion on the outcomes and appropriate supervisory responses, and a robust implementation assessment.”

It added: “In recognition of the fact that the Holistic Framework, consistently implemented, provides an enhanced approach to assessing and mitigating systemic risk in the global insurance sector, the FSB has decided to suspend the identification of global systemically important insurers (G-SIIs) from 2020.

“In November 2022, the FSB will, based on the initial years of implementation of the Holistic Framework, review the need to either discontinue or re-establish an annual identification of G-SIIs.”

The news was part of a ranged of reforms that the association said would better enable “effective cross-border supervision of insurance groups and contribute to global financial stability”.

The reforms were described as “significant achievements” and reflected “a shared commitment from the world’s insurance supervisors to the maintenance of fair, safe and stable insurance markets for the benefit and protection of policyholders”.

“This has been a week of major achievements for the IAIS”, stated Victoria Saporta, IAIS Executive Committee Chair at its Annual General Meeting in Abu Dhabi. “The reforms adopted by our Members mark a big step forward as a global community of supervisors in the pursuit of our mission to support the stability and sustainability of the insurance sector, protect policyholders and promote global financial stability.”

The reforms include a Common Framework (ComFrame) that will establish supervisory standards and guidance focusing on the effective group-wide supervision of Internationally Active Insurance Groups (IAIGs).

“ComFrame is a comprehensive and outcome-focused framework that provides supervisory minimum requirements tailored to the international activity and size of IAIGs,” it explained. “ComFrame will provide supervisors with a common language for the supervision of IAIGs. The implementation of ComFrame should result in more efficient supervisory processes, for the benefit of both supervisors and IAIGs.”

There will also be a new Insurance Capital Standard (ICS) with the purpose of creating a common language for supervisory discussions of group solvency of IAIGs “to enhance global convergence among group capital standards”.

There will now be a five year monitoring period for the new ICS Version 2.0 starting in January 2020.

“During the monitoring period, ICS Version 2.0 will not trigger any supervisory action but will be used for confidential reporting and discussion in supervisory colleges to provide feedback to the IAIS on the ICS design and performance,” added the IAIS.