The IAIS has concluded the initial development of a Higher Loss Absorbency (HLA) requirement to apply to Global Systemically Important Insurers (G-SIIs) from January 2019. The HLA is designed to minimise the effect on the global financial system of the distress or failure of a G-SII and will apply from January 2019. The requirements will apply to the nine G-SIIs identified by the Financial Stability Board in conjunction with the IAIS and national authorities. This marks the completion of the second step in the IAIS’s project to develop risk-based group-wide global insurance capital standards for G-SIIs.
G-SIIs will be expected to hold regulatory capital that is not less than the sum of the required capital amounts from the Basic Capital Requirements (BCR) (the initial step in the project which was developed by the IAIS in October 2014) and the HLA.
The total capital required to meet the BCR and HLA is the sum of six components, which are described in the press release.
The design and calibration of both the BCR and the HLA will be reviewed annually. From 2016 the HLA will be reported on a confidential basis to group supervisors. The last step, developing the group-wide insurance capital standard, is due to apply by the end of 2019.
A link to the IAIS press release is here.