We have had the benefit of more than six months since the designations were announced by the Financial Stability Board (FSB), and we now also have the Oct. 9, 2013 statement by the International Association of Insurance Supervisors (IAIS) announcing its intent to develop a global insurance capital standard (ICS) by 2016 for implementation in 2019. Let’s take stock of where we are.
Executive SummaryThe Geneva Association's John Fitzpatrick reviews the FSB's march toward a global capital standard, explains that the omission of a global capital standard did not cause the financial crash of 2008 and reviews the essential regulatory questions for policymakers to consider in 2014.
The essential facts of the July pronouncements by the FSB and IAIS can be summarized as follows:Nine insurers have been named as global systemically important insurers (G-SIIs). For G-SIIs, a “straightforward backstop capital requirement,” on which higher loss absorbency (HLA) will be based, is required to have been created by November 2014. For all internationally active insurance groups (IAIGs), ComFrame will have a “quantified capital standard (QCS),” which will be supplanted by the new ICS.
When one considers these announcements in isolation, someone far from the machinations of Basel and the world’s financial capitals could miss their significance to the global insurance industry. Yet taken together, there should be no doubt as to the significance of the FSB designations and IAIS pronouncements.