IAIS Says No To DeemedRetractions

The International Association of Insurance Supervisors has released a bevy of documents related to the supervision of Internationally Active Insurance Groups.

Of these, the most important for our purposes is the “Technical Note on ICS Version 2.0 for the monitoring period” which states:

Principal Loss Absorbency Mechanism (PLAM): A distinction is made for mutual and non-mutual IAIGs. For non-mutual IAIGs, the 10% limit for Tier 1 Limited financial instruments will be maintained for Tier 1 Limited financial instruments that do not have a PLAM. An additional 5% allowance is granted to those Tier 1 Limited financial instruments that do have a PLAM. The limits are stated as a % of the ICS capital requirement.

For mutual IAIGs: A PLAM is not required as part of Tier 1 Limited capital resources and the limit for Tier 1 Limited capital resources is maintained at 30% of the ICS capital requirement

So that’s an end to the saga that began in February, 2011. As an investor, I’m shocked; as a taxpayer who will end up footing the bill if one of our outsized insurance companies goes down, I’m disappointed.

Update: An end? Or a new beginning? The Canadian Office of the Superintendent of Financial Institutions – which has disgraced itself throughout the negotiations for ICS 2.0 – has announced:

While broadly supportive of the goals of the Insurance Capital Standard (ICS), the Office of the Superintendent of Financial Institutions (OSFI) did not support the ICS design proposed for a five-year monitoring period at the Executive Committee Meeting of the International Association of Insurance Supervisors (IAIS) in Abu Dhabi, United Arab Emirates.

OSFI’s view is that that the Standard in its current form is not fit for purpose for the Canadian market. Specifically, the proposed capital requirements for long-term products are too high to be compatible with OSFI’s mandate of allowing Canadian insurers to compete and take reasonable risks.

During the five-year monitoring period, OSFI will continue its work in trying to achieve an international capital standard for insurance companies that works for all jurisdictions.

Quick Facts

• Canadian insurers will continue to be subject to the requirements of OSFI’s robust capital frameworks for federally regulated insurance companies.
• An initiative of the IAIS, the International Capital Standard is a proposed common capital standard for large internationally active insurance groups.

So, maybe a PLAM for Tier 1 Limited capital resources is a bargaining chip …

Update: There hasn’t been much press coverage of this, but here are two articles:

• U.S. INSURANCE REGULATORS ACHIEVE POSITIVE PROGRESS ON INSURANCE CAPITAL STANDARDS
• World Regulator Group May Let U.S. Have Its Own Capital Standards

Update, 2019-11-17: States and Feds Split on Major World Insurance Standards Deal

Update, 2019-11-18: OSFI rebuffs global capital rules for insurers.