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The IAIS proposal of a

Global Insurance Capital Standard

Falco Valkenburg

Lisboa, 23 March 2015

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Mission IAIS

The mission of the IAIS is

to promote effective and globally consistent supervision

in order to develop and maintain fair, safe and stable

insurance markets

for the benefit and protection of policyholders and

to contribute to financial stability.

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G-SIIs

Globally Systemically Important Insurers = G-SIIs

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G-SIIs

List was reconfirmed on 6 November 2014

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G-SIIs: Policy Measures

Enhanced Supervision

– Systemic Risk Management Plan

– Enhanced Liquidity Planning and Management

– Group-wide supervisor has direct power over holding companies

Effective Resolution

– Crisis Management Groups

– Elaboration of recovery and resolution plans

– Resolvability Assessments

– Institution-specific cross-border cooperation agreements

Higher Loss Absorption (HLA) Capacity

– Straightforward, backstop capital requirements

– Published end of 2014

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Global Insurance Capital Standard

IAIS’ work doesn’t stop with G-SII …

Developing a credible and coherent global insurance regime

By 2020

– Enhanced standards of global insurance supervision and

cooperation

– Quantitative Capital Standards for IAIGs

• IAIG = Internationally Active Insurance Group (approx. 50 groups)

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Basic Capital Requirements (BCR)

BCR developed on the bais of 6 principles:

Substantive principles

Principle 1: Major risk categories should be reflected

Principle 2: Comparability of outcomes across jurisdictions

Principle 3: Resilience to stress

Construction principles

Principle 4: Simple design and presentation

Principle 5: Internal consistency

Principle 6: Optimise transparency and use of public data

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BCR: some comments

Based on local best estimates

Discount rate

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High Loss Absorbency (HLA)

Six Substantive principles (relevant over long time frame)

1. Comparability

2. G-SII risks

3. Internalise costs

4. Resilient

5. Going concern

6. Quality of capital

Four Construction principles (more short term guidance)

7. Pragmatic

8. Consistent

9. Transparent

10.Refinement

To be developed by 2015

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ICS Principles (first 5 of 10)

1. Consolidated group-wide standard with a globally comparable risk-

based measure of capital adequacy for IAIGs and G-SIIs

2. Protection of policyholders and contributing to financial stability

3. Foundation for HLA for G-SIIs

4. Reflects all material risks to which an IAIG is exposed

5. Aims at comparability of outcomes across jurisdictions and therefore

provides increased mutual understanding

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ICS Principles (second 5 of 10)

6. Promotes sound risk management by IAIGs and G-SIIs

7. Promotes prudentially sound behaviour while minimising inappropriate

procyclical behaviour by supervisors and IAIGs

8. Strikes an appropriate balance between risk sensitivity and simplicity

9. Transparent, particularly with regard to the disclosure of final results

10. Capital requirement based on appropriate target criteria which underlie

the calibration

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Next steps

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Falco Valkenburg

Independent Actuary

Chairperson Pensions Committee of the Actuarial Association of Europe

M +31 (0)6 22 78 50 29

E hello@falcovalkenburg.eu

W www.falcovalkenburg.eu

Skype frvalkenburg

Twitter @FalcoValkenburg

LinkedIn: nl.linkedin.com/in/falcovalkenburg