The US-developed aggregation method (AM) for group capital evaluation is being evaluated by the International Association of Insurance Supervisors (IAIS), and the organisation is looking for feedback on its criteria (ICS).
At the 2022 IAIS Global Seminar, which took place in Dubrovnik, Croatia, on June 16–17 of that year, the comparability evaluation was formally made available for review. Comments are welcome until August 15, 2022. The AM shall be regarded as an outcome equivalent technique for ICS implementation as a specified capital requirement if it is determined to be comparable.
According to Steve Broadie, vice president of financial policy at the American Property Casualty Insurance Association (APCIA), which is strongly in support of the AM for US insurers, “the AM for group capital assessment is accomplishing the same thing as the ICS, but from a different position.” The AM combines the capital requirements of all the legal entities within the group, regardless of where they are headquartered globally, to produce an overall group capital assessment, whereas the ICS is a consolidated group level capital requirement.
Regulators can use the AM to obtain an inventory that displays the capital needs and capital resources of the various legal entities, giving them the ability to see where capital is located within the group. In essence, insurance supervisors have the resources to identify potential financial trouble spots and trigger points. With the ICS technique, which consolidates at the group level and prevents regulators from seeing where capital is held within the company, this is not possible.
According to Broadie, “that’s one area we think the AM is preferable to the ICS method.” “The ICS is based on fair valuing assets and liabilities, similar to the approach used by Solvency II in the EU, but the AM takes the legal entities as it finds them. This is another fundamental distinction between the two. For regulatory reporting, the National Association of Insurance Commissioners (NAIC) chose statutory accounting, which is based on a different accounting technique from that used in Europe for Solvency II. In the US, we utilise generally accepted accounting standards (GAAP) for public reporting.
The Insurance Policy Advisory Committee of the Federal Reserve Board recently published a study that stated that the ICS “would not be acceptable as a capital requirement for US-based internationally active [life] insurance organisations” prior to the IAIS Global Seminar. According to the APCIA, P&C insurers would need to employ a distinct regulated accounting system at significant expense in order to implement the ICS.
The ICS won’t be used in the US, according to the NAIC and the Federal Reserve Board. The APCIA “highly encourages acceptance and implementation at the state level” even if it will take some time for the AM for group capital assessment to be fully implemented.
Broadie emphasised the following in regards to the consultation on the comparability assessment: “The ICS and the AM examine group capital from distinct perspectives. However, we at the APCIA would prefer to see a combination of quantitative research and consideration of qualitative regulatory factors. European supervisors have urged for a far more quantitative approach when analysing comparability with the AM.
The principal national trade organisation for home, auto, and commercial insurers is the APCIA, which supports and safeguards the existence of private competition for the gain of customers and insurers. Families, communities, and companies in the US and around the world are protected by its members, who represent various shapes, sizes, and geographical areas.
Broadie stated, “We are now starting the process of looking at the suggested criteria with our members. The deadline for comments is August 15, so we only have a short amount of time to complete that. We want our members’ feedback on both the specifics for them and the [group capital evaluation] strategy as a whole.