The International Association of Insurance Supervisors (IAIS) has opened a consultation on its proposal to develop a higher loss absorbency (HLA) requirement for global systemically important insurers (G-SII). The foundations for the HLA requirement for G-SIIs concluded in July 2013 with the introduction of the basic capital requirement (BCR). The consultation seeks feedback on several options relating to the design, development and calibration of the HLA. The HLA will apply to all group activities, including non-insurance subsidiaries.

When the HLA requirement is implemented G-SIIs will be required to hold regulatory capital no less than the sum of the required capital amounts from the BCR and the HLA, which together will provide a consolidated group wide capital requirement for G-SIIs. The rationale behind this is to assist in the reduction of the probability and impact on the financial system of the distress or failure of a G-SII. When the globally comparable insurance capital standard (ICS) is developed, the HLA will then be reviewed as the ICS will replace the current basic capital requirement.

It is expected that the HLA will be delivered to the G20 for endorsement in November 2015 and will apply to G-SIIs from 2019. A copy of the full consultation paper can be found here:http://email.practicallaw.com/c/1kQiRgVPTA0YRqE7rsXnSG3oh.