Questions Persist for U.S. Insurers Eyeing Global Standards

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By Brandon Ross

U.S. insurance companies may have to wait for some time before learning how an international supervisory group will address their concerns on insurance group solvency standards.

The International Association of Insurance Supervisors (IAIS) will release in July the latest version of its guidelines for measuring capital obligations and setting reserves for globally active underwriters. The goal is to help harmonize insurance regulation internationally and increase understanding of insured risk globally.

But key questions about how certain types of common investments will be valued and how regulators will calculate the financial obligations of an insurance group will probably linger awhile because the IAIS Insurance Capital Standard (ICS) 1.0 isn’t expected to address those concerns, U.S. insurance trade groups told Bloomberg BNA. The standard has been in development for years as part of the IAIS’ Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame).

“There are a number of issues in the ICS 1.0 that, if they’re resolved the wrong way, could hurt U.S. companies,” Steve Broadie, vice president of financial policy with the Property Casualty Insurers Association of America, told Bloomberg BNA following the IAIS’ mid-year global seminar in the U.K.

U.S.-based Internationally Active Insurance Groups (IAIGs) that could be subject to the ICS and ComFrame could include companies like Chubb Ltd., Liberty Mutual Insurance Co. and the Travelers Cos. Inc.

Internationally active insurance groups, as defined by IAIS, must:

  •  Actively write premiums in at least three jurisdictions
  •  Have total assets of more $50 billion or more, or gross written premiums of $10 billion or more, on a rolling three-year basis
  •  Have international premiums account for at least 10 percent of all the group’s written premiums
Rather, IAIS officials told stakeholders at the meeting that it was aware that there were some key concerns, but that those questions would be resolved by an IAIS task force that will be formed to work on ICS 2.0, attendees told Bloomberg BNA.

"[T]he IAIS Executive Committee has created an ICS Task Force comprised of Executive Committee members to provide steer[ing] on outstanding issues to ensure a smooth delivery of ICS version 2.0 in late-2019,” Stephen Hogge, senior policy adviser for communications with IAIS, told Bloomberg BNA in a June 11 email.

Capital, Value of Investments

Various incarnations of the ICS during development have calculated an insurance group’s total financial obligations at the holding company level. But those calculations don’t take into account how much capital individual subsidiaries, called legal entities, have available to pay claims, the American Insurance Association (AIA) told Bloomberg BNA after the IAIS seminar.

“Capital at the entity level wouldn’t be recognized,” Phil Carson, associate general counsel and director of financial regulatory policy with AIA said.

“You’re going to recognize all the obligations, but you’re not going to recognize all the capital within the group [available] for insurance claims,” Carson said.

As for how insurers’ investments are viewed by regulators, the ICS will use a system that classifies those investments into tiers of capital. Tier 1 is highly valuable capital investment under the proposed system.

Insurers, especially mutual insurers, are concerned that investments in surplus notes will not be regarded as Tier 1 capital under the proposed ICS. How the IAIS will address this concern isn’t expected to be dealt with in ICS 1.0.

To contact the reporter on this story: Brandon Ross in Washington at bross@bna.comTo contact the editor responsible for this story: Paul Hendrie at phendrie@bna.com

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