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International group introduces capital standard formula for insurers

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The International Association of Insurance Supervisors on Thursday said it has developed the first global insurance capital standard.

The standard, known as Basic Capital Requirements for Global Systemically Important Insurers, uses a ratio calculated by dividing “total qualifying capital resources by required capital, both of which are initially derived from a comparable market adjusted valuation approach using current estimates of insurance liabilities,” the Basel, Switzerland-based insurance regulators group said in a statement.

Total qualifying capital resources are determined on a consolidated groupwide basis for all financial and material nonfinancial activities and are classified as either core or additional capital, the IAIS said

The standards initially would apply to nine global insurers designated as global systemically important in 2013 by the Basel-based Financial Stability Board.

These are Allianz S.E., American International Group Inc., Assicurazioni Generali S.p.A., Aviva P.L.C., Axa S.A., MetLife Inc., Ping An Insurance (Group) Co. of China Ltd., Prudential Financial Inc. and Prudential P.L.C.

Beginning in 2015, the Basic Capital Requirements, or BCR, will be reported on a confidential basis to groupwide supervisors and be shared with the IAIS for purposes of refining the BCR as necessary, IAIS said in the statement.

“With design of the BCR now complete, the IAIS has concluded the first of several steps in its process to develop groupwide global insurance capital standards,” Peter Braumüller, chairman of the IAIS executive committee, said in the statement.

A former New York insurance superintendent said in an email that the reach of the standards could extend beyond the current nine insurers.

Although the standard affects only the G-SIIs at this point, “it is seen as an inexorable movement on the part of the IAIS to set higher capital standards for all insurers ultimately,” said Howard Mills, chief adviser at the insurance industry group at Deloitte Services L.L.P. in New York.

He added that the U.S. insurance industry “faces a period of uncertainty and concern over this that will likely stretch on for some time.”

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