The International Association of Insurance Supervisors (IAIS) released the 2013 draft Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) for public consultation during the association’s 20th Annual Conference in Taipei on October 17, 2013. FIO Focus, Issue No. 4 provides a brief background on the IAIS. ComFrame, as described by the IAIS, is a coherent framework for the supervision of internationally active insurance groups (IAIGs). The purpose of ComFrame is to create systems for interactions and information sharing among regulators for group-wide supervision of IAIGs.
ComFrame has a number of fundamental principles. Proportionality is one such principle, as the nature, scale and complexity of an IAIG are factors to consider in its application. ComFrame does not favor any specific operational structure for an IAIG nor is preference given to either a direct or indirect supervisory approach. Group-wide supervisors of IAIGs and involved supervisors (of individual entities within a group) should be cooperative and collaborative as allowed within the constraints of confidentiality.
ComFrame consists of three modules, with each module made up of a number of elements.
Module 1: The Scope of ComFrame
The first module defines IAIGs and sets out the process used to identify them. IAIGs meet the following criteria:
- Have premiums that are written in at least three jurisdictions and the percentage of gross premiums written outside the home jurisdiction must be at least 10% of the group’s total gross written premium; and
- Total assets must be at least $50 billion or gross written premiums must be at least $10 billion, on a rolling three-year average.
The first module also addresses how supervisors should determine which entities are within the perimeter of ComFrame supervision and how to identify the appropriate group-wide supervisor.
Module 2: The IAIGs
The second module sets forth standards that IAIGs must comply with, including the development and implementation of enterprise risk management, the process for assessing capital adequacy, and reporting and disclosure requirements. The group governance framework as well as legal and management structures are also covered in this module.
Module 3: The Supervisors
The third module describes the process supervisors will undertake in assessing whether IAIGs meet the standards identified in Module 2. The group-wide supervisory process, the requirement for supervisory colleges, and the need for collaboration among group-wide and involved supervisors are also presented. Finally, measurements for addressing crisis management and resolution are addressed.
Comments submitted in response to the 2013 draft ComFrame are due by December 16, 2013. A revised draft will be developed by March 2014 and field testing of certain aspects will begin thereafter. ComFrame is currently scheduled to be formally adopted in 2018.
U.S. members of the IAIS include the National Association of Insurance Commissioners (NAIC), state insurance commissioners and the Director of the Federal Insurance Office (FIO). The Federal Reserve Board is also seeking to become a member of the IAIS. The Federal Reserve Board recently assumed prudential supervisory responsibilities for the two U.S. insurance groups that were designated as systemically important financial institutions (SIFIs).
IAIS to Develop Global Capital Standards
During the conference, the IAIS announced plans to develop risk-based global insurance capital standards by 2016 that will be incorporated into ComFrame. The current solvency assessment within ComFrame includes a capital component that will be the starting point for development of global insurance capital standards. The capital standards are to be tested for two years, with full implementation scheduled to begin in 2019.
In addition to the global capital standards for IAIGs, the IAIS will also develop straightforward, backstop capital requirements for the nine insurers that have been designated as global systemically important insurers (G-SIIs). FIO Focus No. 37 discusses IAIS policy measures for the supervision of G-SIIs. The backstop capital requirements will include higher loss absorbency requirements for G-SIIs.