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International insurance regulator working on global capital standards


The International Association of Insurance Supervisors' planned capital standards proposal for insurers engaged in international insurance could have a major impact on U.S. insurers, according to industry observers.

The Basel, Switzerland-based IAIS announced this month that it was drafting capital standards with the intention of releasing its initial standards in 2016 and implementing final standards in 2019.

The group did not indicate what the standards might require.

The announcement drew a mixed response, particularly given the uncertain parameters of the proposal.

“It is clear that there will be significant challenges to the creation of a global capital standard for insurers, particularly within the time frame proposed,” said John H. Fitzpatrick, secretary general of the Geneva Association, a think tank devoted to risk management and insurance issues, in a statement. “Development and implementation of global capital standards within other financial service sectors have taken many years to develop. This is because a careful assessment of both the direct and indirect consequences of implementing a global capital standard is of fundamental importance. We acknowledge that the IAIS may need to take incremental steps toward achieving this overall goal.”

“The development of a global capital standard is credit-positive for insurers because globally active insurers currently lack comprehensive capital rules,” Wallace Enman, senior credit officer for Moody's Investors Service Inc., said in an analysis published last week.


He added, however, that “details are limited and there is uncertainty among the insurance industry, observers and local regulators about how global capital standards will be agreed upon and implemented.”

Mr. Enman also noted that there is uncertainty over how the proposed standard would operate with other regulatory initiatives and with state-based insurance regulation in the United States.

“It would be foolish for any insurer, particularly a major insurer, to ignore it because obviously it will have a major impact,” said Lawrence Mirel, a partner in the Washington office of law firm Nelson Levine de Luca & Hamilton L.L.C. and a former District of Columbia insurance commissioner.

“Some U.S. companies will be affected directly,” said Mr. Mirel, adding that those insurers would be the ones designated as “systemically important financial institutions” subject to heightened regulation.

He said although most U.S. insurers have not been designated as SIFIs, “once you have the standard and it's applied to international entities, it's bound to have an effect on everyone.”

According to the IAIS, there could be approximately 50 internationally active insurance groups — property/casualty and life insurers — to which these new capital standards could apply, Insurance Information Institute Inc. President Robert Hartwig said in an email. He said there is concern that compliance costs and more rigorous capital standards could increase consumer costs.

“It is also possible, however, that there may be flexibility in terms of the solvency standards developed in various jurisdictions subject to minimum capital thresholds, for example,” he said. “There has been and remains general concern in the global insurance industry that bank-centric regulations will be imposed on insurers, and any efforts to impose such regulations will likely be strenuously opposed by insurers.”


David Snyder, vice president-international policy with the Property Casualty Insurers Association of America in Washington, said that there is “little evidence” of property/casualty insurers presenting any sort of systemic risk, adding that the global and U.S. regulatory systems performed “quite well” during the global economic crisis that exploded in 2008.

“We'll work with IAIS as they move forward. We will be vigilant about an outcome that creates a single global standard that could eventually give rise to systemic risk because regulators and companies are all doing the same thing in the same way,” Mr. Snyder said.

“As you begin to discuss what should be key principles in capital standards, it should be based on the realities of the insurance market, which are very different from banking,” he said. “It should not impose unnecessary costs on insurers that ultimately would harm consumers in terms of availability and affordability.”

“You are better off in a ship with multiple airtight compartments than one with one big compartment,” said Mr. Snyder.

“There are a great many details to be worked out in order for the IAIS plan for global insurance capital standards to be developed by 2016,” said Mr. Hartwig. “Given the complexity and lack of agreement over how such standards should be structured — or even whether they should exist at all — some slippage in the current 2019 implementation might well be expected.”