1. The IAIS, Standard Setting and Implementation
Rogier Derksen
Senior Policy Advisor
24 May 2016

2. Overview The IAIS and its Standard Setting Activities
Background on IAIS and its Activities
Standard Setting
Insurance and Financial Stability – Implications and Challenges for the Region
Insurance and Financial Stability
Identification of G(lobal)SIIs
R(egional)SIIs? D(omestic) SIIs?
Implementation, assessments
IAIS Implementation Activities
Different forms of assessment
Challenges in the region
Why implementation Fails – and what can we do about it?

3. The IAIS and its Standard Setting Activities

4. IAIS - a global standard setter
Mission
Promote effective and globally consistent supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders
Contribute to global financial stability
IAIS membership is broad and diverse:
About 200 jurisdictions in nearly 140 countries
97% of the world's insurance premiums

5. IAIS activities Activity Actions Standard setting
ICP, ComFrame, G-SII materials
All aspects of insurance regulation and supervision
New developments (FinTech)
Standard implementation
Facilitate development and understanding
Strategic partnerships (eg FSI)
Assessments and Peer reviews
Support capacity building
Financial Inclusion
Support co-operation
MMoU
Guidance on Supervisory colleges
Regional meetings
Represent Membership
Liaise with other standard setters
Liaise with international bodies

6. IAIS Standard Setting Activities
All authorised insurers (at legal entity and group level)
Insurance core principles (ICPs)
Major review underway
Internationally Active Insurance Groups (IAIGs)
Common Framework for Supervision of IAIGs – ComFrame
A global quantitative insurance capital standard (ICS)
Qualitative requirements
Global Systemically Important Insurers (G-SIIs)
Qualitative and Quanatative Aspects
Emphasis on enhanced supervision and recovery, monetizing risks

7. Proportionality of IAIS Supervisory Requirements

8. ICP Review and Revision
The ICPs are comprised of 26 distinct Core Principle statements, each with numerous corresponding standards and guidance material.
ICPs are being reviewed and refined based on Feedback loop from assessments
Comprehensive review over 3 years, taking into account feedback loop and IMF / WB, FSB, etc

9. ComFrame: an Overview ComFrame development began in July 2010
Module 1
Module 2
Module 3
Identification of IAIGs
IAIG’s legal and management structures
Group-wide supervisory process
Process of identifying IAIGs
Governance
Supervisory colleges, cooperation and coordination
Scope of supervision
ERM
ERM Policies
Identification of GWS
Capital adequacy assessment
Crisis management and resolution measures among supervisors
ComFrame development began in July 2010
Three consultations - each year from 2011 to 2013
Field testing in 2014/2015

10. IAIGs identification criteria
Criteria to identify IAIGs are set in the module 1 of ComFrame
Criteria for IAIGs:
A. International Activity
Premiums are written in not fewer than three jurisdictions, and
Percentage of gross premiums written outside the home jurisdiction is not less than 10% of the group’s total gross written premium;
AND
B. Size (based on a rolling three-year average):
Total assets of not less than USD 50 Billion, or
Gross written premiums of not less than USD 10 Billion.

11. Ultimate goal for the ICS (no date attached)
The ultimate goal of a single ICS will include a common methodology by which one ICS achieves comparable (i.e. substantially the same) outcomes across jurisdictions.
Ongoing work is intended to lead to improved convergence over time on the key elements of the ICS towards the ultimate goal.
Not prejudging the substance, the key elements include valuation, capital resources and capital requirements.

12. ICS Development Process and Timetable
Timing
Key milestone
March-September 2014
First round of field testing including different valuation approaches for the ICS and BCR
December 2014
First ICS Consultation
April to September 2015
Second round of field testing including HLA and ICS standard method
(Includes private reporting of BCR)
May to September 2016
Third round of field testing including ICS standard method
(Includes private reporting of BCR and HLA)
June 2016
Second ICS Consultation
May/June-2017
Adoption of ICS Version 1.0
June-September 2017 /2018/2019
Further field testing
Includes private reporting of ICS Version 1.0
May/June 2018
Third ICS consultation
IAIS 2019 General Meeting
Adoption of ComFrame, including ICS Version 2.0
From 2020
Implementation of ComFrame, including ICS, to commence
Version 1.0 (for confidential reporting)
By mid-2017
Two valuation approaches
A standard method
Version 2.0 (for adoption with ComFrame)
By 2019
Achieve an improved level of comparability
May still include two valuations but with reduced differences
May allow for both a standard method and other methods including the use of internal models and variations of the standard method
After ICS Version 2.0 is adopted there will be an implementation period while jurisdictions embed the ICS into regulatory requirements and supervisory practices.

13. G-SII Policy Framework
Enhanced supervision
Systemic risk management plan (SRMP)
Group-wide supervision
Liquidity management
Effective resolution
Crisis management groups (CMGs)
Recovery and resolution plans
Resolvability assessments
Institution specific cross-border cooperation agreements
Higher loss absorbency
Basic Capital Requirement (BCR): for GSIIs – finalised in Oct 2014
Higher Loss Absorbency (HLA) : for GSIIs - finalised in November 2015

14. Insurance and Financial Stability – Implications and Challenges for THE Region

15. Insurance and Financial Stability
Differences exist between traditional insurance and banking business in terms of financial stability and systemic importance
The unique insurance business model helps insurance firms to withstand systemic risk better than banks.
- HOWEVER -
Insurance sector is susceptible to systemic risk generated in other parts of the financial sector
Insurers may amplify risk under specific circumstances
Non-traditional insurance and non-insurance activities within insurance groups may generate or amplify systemic risk.

16. G-SII Assessment Methodology
IAIS Methodology for Recommending List of G-SIIs to FSB:
20 indicators in 5 categories:
Size
Global activity
Interconnectedness
Non-traditional insurance and non-insurance (NTNI) activities
Substitutability
Higher weighting for NTNI and interconnectedness (together 80-90%)
Supervisory judgment plays an important role
Methodology (including NTNI definition) is currently under review. See IAIS website for Public Consultation launched 25 November 2015

17. Regionally and Domestically Significant Institutions
While the GSII Methodology provides a guide, there is no explicit IAIS Guidance on criteria for identifying DSII/RSII, or on DSII/RSII policy measures
Overall objectives of DSII/RSII Supervision / Regulation should include:
Reduce moral hazard from the failure
Reduce negative externalities from the failure
Reduce the probability and impact of default
Incentivise SIIs to become less systemically important – monetise additional risks (additional risks will not be with tax-payers)

18. Implementation Programme and Assessments

19. IAIS Implementation Cycle

20. Implementation considerations
The IAIS implementation programme is based on the following:
IAIS best defined as “catalyst” or “facilitator”
Help generate / shape implementation support through:
Understanding needs / challenges (regional contributions and assessment activities)
Coordinating with partners (such as A2ii, FSI, World Bank) to provide training and technical assistance – identifying opportunities to maximise benefits of implementation support
Developing regional plans / monitoring tools to provide regional / IAIS level encouragement, cooperation and peer learning

21. Supervisory Development Initiatives
FIRST ONE
On-line programme for new supervisors
Webinars and self directed learning
FSI Connect Licenses
FSI Connect offers on-line web-based tutorials for banking and insurance supervisors
Distributed for free to IAIS Members based on demand / need
Core Curriculum
Compendium of knowledge covering supervision & regulation for insurance
The 2010 version is being refreshed by IAIS and World Bank
Regional Seminars
IAIS financially supports 10 regional seminars per year, in different regions
Regional seminars are generally organised by FSI
Translations
Framework for translating IAIS supervisory material – member driven

22. Determine where you are before determining where to go!
Assessments
Considerations for any assessment
Jurisdictions are assessed “solely on the laws, regulations and other supervisory requirements and practices that are in place at the time”
ICP Observance determined bottoms up – looking at each standard
Observance (generally) requires:
1) Adequate legislation
2) Policies and procedures that demonstrate you undertake the task necessary to achieve the objective
3) Evidence in supervisory practice that you have recently undertaken the task.
If anything is any part of this is not deemed sufficient by the assessor, then observance is not possible
Determine where you are before determining where to go!

23. Some Types of Assessment
FSAP / ROSC (review of standards and codes)
Two objectives: Surveillance and Sector Development
Conducted by the IMF and World Bank; very robust and in-depth
Significant review of FSAP programme currently underway; programme likely to change
Self Assessments
Beneficial, but lacks independence
Conducted by jurisdiction
Very flexible Can be conducted at any time on any subject
IAIS Self Assessment and Peer Review
Done with outside expert(s)
Based on responses to fact based questionnaires / expert review
IAIS programme completes on a thematic basis (grouping similar ICPs)

24. Assessing against the objective
The Three “P’s”
Essential Components
Questions
Framework
Do I have the power to achieve the objective of the standard? Is the power have the force of legislation? Is it fully and clearly elaborated?
Policies and Procedures
Do I have the policies and procedures that put the power in practice in support of the objective?
Supervisory Practice
Do I undertake the practices to achieve the objective?

25. Assessment Categories
IAIS Assessment Categories
How is the objective assessed?
Do I have the legal framework?
Do I have the policies and procedures to put the power into practice?
Assessment Category
Elaboration
Observed
All essential criteria observed
Largely observed
Only minor shortcomings exist
Partly observed
Despite progress, shortcomings sufficient to raise doubts
Not observed
No substantive progress
Not applicable
Not applicable due to structural/ legal/ institutional features or responsibility with other authorities

26. Challenges for the Region: Final Considerations
Insurance penetration rates in Central and South America are growing, but remain low
New developments in the markets provide great opportunity but also put pressure on supervisors and create new risks
Market changes
New technology
New business lines
Financial inclusion / inclusive insurance
IAIS Assessment Programme demonstrates implementation of risk based approaches to supervision (including at insurance group level) remains a challenge for jurisdictions
Enhancing supervision important but will be challenging – improved cooperation, greater coordination, enhanced regulatory frameworks and supervisory practices

27. Questions?

28. Contact information
Rogier Derksen Member of the Secretariat International Association of Insurance Supervisors Centralbahnplatz 2 c/o BIS P: M: E: