Comment Period Expires for IAIS Public Consultation on ICS 2.0

Readers will remember that I am very interested in the IAIS deliberations regarding the definition of Insurance company Tier 1 Limited Capital (which includes preferred shares); I take the view that rules comparable, if not identical to the bank NVCC rules will be imposed by OSFI at some point in the future.

I do not expect OSFI to act until a global standard is agreed upon.

Those who have followed my arguments to support my position may well be getting impatient, although not as impatient as I am. So, I’ll just pass along the news that the comment period for the IAIS Public Consultation: Risk-based Global Insurance Capital Standard (ICS) Version 2.0 has expired:

The purpose of this consultation document (CD) is to solicit feedback from stakeholders on the ICS ahead of the completion of ICS Version 2.0, scheduled for late-2019, before the monitoring period begins on 1 January 2020. This CD covers both issues related to the ICS Version 2.0 monitoring period and the technical aspects of the design and calibration of ICS Version 2.0.

This CD is the third IAIS consultation in a multi-year process to develop the ICS. The IAIS issued its first and second ICS consultation documents in December 2014 and July 2016, respectively. In addition, the IAIS has conducted three quantitative Field Testing exercises in the development of the ICS – in 2015, 2016 and 2017. Currently, the IAIS is conducting its fourth quantitative ICS Field Testing exercise, with data to be submitted in August 2018.

At the same time as this consultation on ICS Version 2.0, the IAIS is also consulting on the Common Framework for the Supervision of IAIGs (ComFrame). While ICS is part of the ComFrame, it was agreed by the Executive Committee of the IAIS in June 2017 that ICS Version 2.0 would be adopted as a stand-alone document in 2019. As such, there are two separate consultation documents.

The consultation document, downloadable from the above page, contains the critical (for our purposes) question:

173. The IAIS is considering whether to set an additional criterion requiring Tier 1 Limited instruments to have a principal loss absorbency mechanism (PLAM). Such mechanisms would provide a means for financial instruments to absorb losses on a going-concern basis through reductions in the principal amount and cancellation of distributions. Without such mechanisms these instruments might only provide going concern loss absorbency through cancellation of distributions.

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I will also note that:

7. Comments must be sent electronically via the IAIS Consultations webpage.1 All comments will be published on the IAIS website unless a specific request is made for comments to remain confidential.

I will be keeping a sharp eye out for publication of comments received, I assure you, and will pass them on.

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