Public

Basic Capital Requirements for
Global Systemically Important Insurers

23 October 2014

Basic Capital Requirements for
Global Systemically Important Insurers
23 October 2014

Page 1 of 48

About the IAISThe International Association of Insurance Supervisors (IAIS) is a voluntary membershiporganisation of insurance supervisors and regulators from more than 200 jurisdictions innearly 140 countries. The mission of the IAIS is to promote effective and globally consistentsupervision of the insurance industry in order to develop and maintain fair, safe and stable
insurance markets for the benefit and protection of policyholders and to contribute to global
financial stability.
Established in 1994, the IAIS is the international standard setting body responsible fordeveloping principles, standards and other supporting material for the supervision of theinsurance sector and assisting in their implementation. The IAIS also provides a forum forMembers to share their experiences and understanding of insurance supervision andinsurance markets. In addition to active participation of its Members, the IAIS benefits from
input in select IAIS activities from Observers representing international institutions,professional associations and insurance and reinsurance companies, as well as consultants
and other professionals.
The IAIS coordinates its work with other international financial policymakers andassociations of supervisors or regulators, and assists in shaping financial systems globally.
In particular, the IAIS is a member of the Financial Stability Board (FSB), founding member
and co-parent of the Joint Forum, along with the Basel Committee on Banking Supervision(BCBS) and the International Organization of Securities Commissions (IOSCO), member of
the Standards Advisory Council of the International Accounting Standards Board (IASB), andpartner in the Access to Insurance Initiative (A2ii). In recognition of its collective expertise,
the IAIS also is routinely called upon by the G20 leaders and other international standard
setting bodies for input on insurance issues as well as on issues related to the regulationand supervision of the global financial sector.
International Association of Insurance Supervisors
c/o Bank for International Settlements
CH-4002 Basel
Switzerland
Tel: +41 61 225 7300
Fax: +41 61 280 9151
www.iaisweb.org© International Association of Insurance Supervisors (IAIS), 2014.
All rights reserved. Brief excerpts may be reproduced or translated provided the source isstated. This document is available free of charge on the IAIS website under
www.iaisweb.org.

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Contents
1

Overview .......................................................................................................................... 5
1.1

2

3

4

5

Executive summary ......................................................................................................... 7
2.1

Background & Mandate ............................................................................................ 7

2.2

BCR Design .............................................................................................................. 7

2.2.1

BCR Ratio ......................................................................................................... 7

2.2.2

Factor-Based Approach for BCR Required Capital ........................................... 7

2.2.3

Capital Resources ............................................................................................. 9

2.2.4

Treatment of Diversification ............................................................................... 9

2.2.5

Asset-Liability Matching (ALM) .......................................................................... 9

2.3

Calibration Level ....................................................................................................... 9

2.4

Next steps ............................................................................................................... 11

BCR Approach ............................................................................................................... 12
3.1

Application of BCR ................................................................................................. 12

3.2

Required Capital ..................................................................................................... 13

3.3

Insurance ................................................................................................................ 14

3.4

Non-insurance ........................................................................................................ 15

3.5

Indicative capital allocation ..................................................................................... 17

3.6

BCR principles ........................................................................................................ 17

Qualifying Capital Resources ........................................................................................ 19
4.1

BCR Ratio ............................................................................................................... 19

4.2

G-SII capital resources ........................................................................................... 19

Market Adjusted Valuation Approach ............................................................................ 20
5.1

6

7

Purpose .................................................................................................................... 5

Valuation principles ................................................................................................ 20

Impact on G-SIIs ............................................................................................................ 21
6.1

Calibration Level and Capital Resources ............................................................... 21

6.2

Reporting and Applicability ..................................................................................... 21

6.3

Implementation of the BCR .................................................................................... 21

Communication plans and next steps ............................................................................ 22

Annex A – BCR Principles .................................................................................................... 23
Annex B – Glossary .............................................................................................................. 24
Annex C – Insurance Liabilities and Reinsurance Recoverables ......................................... 25
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Annex D – Qualifying Capital Resources .............................................................................. 35
Annex E – BCR Formula and Derivation .............................................................................. 39
Annex F – Mapping table: BCR category to field testing data collection .............................. 47

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1

Overview

1.1 Purpose
1. The purpose of this document is to describe Basic Capital Requirements (BCR) for
Global Systemically Important Insurers (G-SIIs). The BCR will be privately reported by GSIIs to group-wide supervisors from 2015.
2. The development of the BCR is the first step of the International Association of Insurance
Supervisors’ (IAIS) project to develop group-wide global capital standards. The second
step is the development of Higher Loss Absorbency (HLA) requirements to apply to GSIIs, due to be completed by the end of 2015. The HLA will build on the BCR andaddress additional capital requirements for G-SIIs reflecting their systemic importance in
the international financial system. The third step is the development of a risk based
group-wide global Insurance Capital Standard (ICS), due to be completed by the end of
2016, and to be applied to Internationally Active Insurance Groups (IAIGs) from 2019
after refinement and final calibration in 2017 and 2018. The development of the ICS will
be informed by the work on the BCR.
3. The BCR is the comparable foundation for HLA, and together they will provide a
consolidated group-wide capital requirement that will apply to G-SIIs only. When
finalised, the ICS will replace the BCR in its role as the foundation for HLA. In the longer
term, the key principle is that G-SIIs should be required by their group-wide supervisors
to hold higher levels of regulatory capital than would be the case if they were notdesignated as G-SIIs.
4. The initial BCR calibration level has been determined, after analysis of informationcollected from field testing volunteers. Because of the interlinkage of BCR and HLA, thecalibration may be modified depending on the HLA requirements. From 2019, G-SIIs will
be required to hold capital no lower than the BCR plus HLA.
5. From 2019, HLA will commence to apply to G-SIIs – HLA will initially be based on BCR
as a foundation, but later will be based on ICS as a foundation. The exact timing of thetransition of the foundation from BCR to ICS will depend upon the adoption date of the
ICS by the IAIS and upon the time required for jurisdictions to develop and implement
the necessary frameworks for implementation of the ICS. The scheduled ICS adoption
date is October 2018. Calibration of HLA may need to be revised once the ICS has been
adopted.
6. Comments on the two public Consultation Documents on the BCR, issued on 16
December 2013 and 9 July 2014, were received, considered and included in the BCR
development process.1

1

The
comments
received
onthe
BCR
Consultation
Documents
areavailable
http://www.iaisweb.org/Supervisory-Material/Financial-Stability-Macroprudential-Policy-Surveillance-988
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7. The field testing exercise to collect data to inform BCR development commenced on 21
March 2014. Thirty four volunteer insurance groups (including all 9 G-SIIs), covering awide range of products and geographical markets, participated in the exercise. The datacollected were used to inform the BCR design, specific factors and calibration level.

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2

Executive summary

2.1 Background & Mandate
8. The BCR is the foundation2 for HLA and together they will provide a consolidated groupwide capital requirement that will apply to G-SIIs only. The BCR serves as a comparable
basis for the application of proposed HLA requirements. Initially, the BCR will bereported on a confidential basis to group-wide supervisors, subject to access by the IAIS
for refinement of the BCR, if necessary.
9. The development and field testing of the BCR will inform development of the ICS. It is
intended that ultimately the ICS will become the foundation for the HLA, at which point
the role of the BCR will be reassessed.
10. Consistent with the principles in Annex A, the BCR reflects major categories of risks
impacting the businesses of G-SIIs and accounts for on- and off-balance-sheet
exposures.
11. Material liability and asset risks are covered by the BCR. The distinctions between longand short term liabilities are recognised. The focus of the design of the BCR is on therisks directly associated with the contingencies insured and other sources of risk for the
G-SIIs. It is expected that a more comprehensive approach will be adopted for ICS
development. Capital requirements are one of many elements of a full supervisory
assessment of the financial condition of G-SIIs and will need to be combined with anevaluation of Qualifying Capital Resources with proper adjustments reflecting specificcharacteristics of insurance liabilities, as well as other quantitative and qualitative
supervisory tools.

2.2 BCR Design
2.2.1

BCR Ratio

12. The BCR status of an insurance group is captured by its BCR Ratio:
BCR Ratio = Total Qualifying Capital Resources (for BCR) / Required Capital (for BCR)
Capital composition limit: For the purposes of the BCR Ratio, Qualifying Additional Capitalcannot exceed 50% of Required Capital (for BCR).3
2.2.2

Factor-Based Approach for BCR Required Capital

13. BCR Required Capital is calculated on a consolidated group-wide basis for all activities.
All holding companies, insurance legal entities, banking legal entities and any other2

On 18 July 2013, the IAIS and the Financial Stability Board (FSB) made the following joint commitment:“As a foundation for HLA requirements for G-SIIs, the IAIS will as a first step develop straightforward,backstop capital requirements to apply to all group activities, including non-insurance subsidiaries, to be
finalised by the end of 2014.”

3This limit will be reexamined once HLA is developed.

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companies in the group will be included in the consolidation. Individual non-financial
entities within the group may be excluded from the scope of the BCR if the risks of/from
those entities are negligible. Any entities excluded from the scope of supervision should
be regularly reconsidered for inclusion.
14. The BCR required capital will be constructed in three basic components: an insurancecomponent (including Non-Traditional activities); a banking component that applies theBasel III Leverage Ratio; and a component for other non-insurance financial activities not
currently subject to regulatory capital requirements.4
15. The BCR is determined using a “factor-based” approach with 15 factors applying todefined segments within the main categories of insurance activity, namely TraditionalLife (TL) insurance, Traditional Non-Life (TNL) insurance, Non-Traditional (NT)insurance, Assets (A) and Non-Insurance (NI). Consistent with Principle 1 (see Annex
A), major risk categories are reflected.
16. As a formula, the BCR Required Capital is:
=

+

+

+

+

where:α (alpha) is the scalar (initially set at 100%) to determine the overall BCR
level5ai, bi ci and di represent the factors applied to the exposures.

TLi, TNLi, NTi, and Ai represent the exposures (as per section 3.3)

NI reflects the charges provided by sectoral rules for non-insurance activities– for example, Basel Accord requirements, established by the BaselCommittee on Banking Supervision (BCBS).

17. For the most part, Current Estimates6 are the proxy measure for risk exposures for
insurance liabilities (excluding any prudential margins). For asset valuations, generally
accepted accounting principles (GAAP) in each relevant jurisdiction will be used, withvarious adjustments to enhance comparability (for example, for invested assets fair value
4

A fourth component for material non-financial activities will be added based on further field testing analysis
work. See paragraph 41.

5

The BCR calibration level may be modified depending on the HLA requirements as well as refinement work
during the period of confidential reporting.

6
ICP 14.8, states: “The current estimate reflects the expected present value of all relevant future cash flows thatarise in fulfilling insurance obligations, using unbiased, current assumptions.” In other contexts a “current
estimate” may be called a “best estimate.” A “best estimate” of a quantity is, in principle, an estimate of thequantity that is neither deliberately overstated nor deliberately understated. The determination of a best estimate
needs to be made within the context of its use. That is, the purpose for which it will be used needs to be clear
and properly reflected.

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measurement is used as the basis for valuation). Field testing informed the level of
granularity required. Non-traditional and non-insurance (NTNI) risks are also addressed
to ensure that risks from all group activities are considered.
18. A Market Adjusted Valuation Approach is the valuation approach to be initially adopted
for the BCR.7 This will be reviewed as the IAIS develops the valuation approach for ICS
purposes. Under this approach, the G-SII starts with the amounts as reported on its
audited, consolidated, general-purpose balance sheet, whether that be on an IFRS or
GAAP basis.
2.2.3

Capital Resources

19. Capital resources are determined on a consolidated basis for all financial activities.8 BCR
Qualifying Capital Resources are classified as either core or additional capital.
2.2.4

Treatment of Diversification

20. The treatment of diversification in the BCR, especially in the context of composite G-SIIs
where their life and non-life business may be of similar sizes, has been explored. While itwould be appropriate to reflect the effect of diversification between major risk drivers in
the ICS, the technical complexity of doing so explicitly in the BCR formula is inconsistent
with its simple design.9 As a straightforward approach, the calibration level of the BCR
implicitly accounts for some degree of diversification.10
2.2.5

Asset-Liability Matching (ALM)

21. While Asset-Liability Matching (ALM) is a major risk category, particularly for life
insurance, practical difficulties within the given timeframe for the development of the
BCR posed particular challenges for addressing this risk category. Following analysis offield testing data, the IAIS determined that explicitly including such a factor in the BCR
formula is not appropriate given the simple design of the formula. As a straightforward
approach, the calibration level of the BCR implicitly accounts for the absence of an ALM
factor.11

2.3 Calibration Level
22. The primary focus of BCR field testing has been to examine the potential impact of the
BCR on G-SIIs. However, additional IAIGs participated in field testing and provided
meaningful information that contributed to the development of BCR. By targeting the
BCR between the upper and lower thresholds for supervisory intervention (e.g. typically7

See section 5 for details of this approach.

8

See section 3.4 for details of the treatment of non-financial activities.

9

The explicit treatment of diversification will be further explored in the development of the ICS.

10

The factors that have been listed in section 3.3 have been determined on a post-diversified basis. This gives
an implicit allowance for the diversification benefit that would be expected for the G-SII group of companies. Dueto the simplistic nature of the BCR, the implicit diversification allowance within the BCR does not allow for thedifferentiation between the G-SIIs where they have different levels of diversification.

11

The explicit treatment of ALM will be further explored in the development of the ICS.

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between the Prescribed Capital Requirement (PCR) and the Minimum Capital
Requirement (MCR)), frequent breaches are not expected assuming normal businessconditions. Field testing has analysed the level of the BCR compared to the reported
PCR of volunteers. For the G-SIIs, the average level of the BCR is 75% of their reported
PCR when the alpha scalar of 100% is applied. For all volunteers considered, theaverage level of the BCR is 67% of the reported PCR when the alpha scalar of 100% isapplied.
23. Field testing has also analysed the level of the BCR compared to the reported total
capital resources of volunteers.
24. For G-SII volunteers, the reported total Qualifying Capital Resources represent 380% of
the BCR and the core Qualifying Capital Resources are 332% of the BCR.12 For allvolunteers, the reported total Qualifying Capital Resources represent 427% of the BCR
and the core Qualifying Capital Resources are 384% of the BCR.

12

These coverage ratios are based on the BCR alone. As indicated in paragraph 3, G-SIIs will be subject to a
consolidated capital requirement of BCR + HLA.
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2.4 Next steps
25. Key milestones for the implementation of the BCR and the development of related
global standards HLA and ICS are:
Expected
timingNovember 2014
December 2014
From 2015
February 2015
March toSeptember 2015
November 2015
March toSeptember 2016
December 20162017 and 2018
Late 2018
From 2019
From 2019

Key milestone
G20 Leaders expected to endorse the BCR proposal
Initial consultation document on ICS released
Confidential reporting of BCR to group-wide supervisors with access by the IAIS
for the purpose of reviewing and refining the BCR (to be provided in conjunction
with the IAIS field testing process)Deadline for responses to the ICS consultation document
Field testing of HLA and ComFrame, including ICS
HLA proposal to be finalised & endorsed by G20
Further field testing of ComFrame, including ICS
ICS to be agreed, subject to further refinement via field testing
Further refinement of ComFrame, including ICS, via field testing
ComFrame, including ICS, to be adopted by IAIS
Implementation of ComFrame, including ICS, to commence
HLA commences to apply to G-SIIs, initially based on BCR as a foundation, later
to be based on ICS as a foundation

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3

BCR Approach

26. The BCR is a consolidated group-wide capital requirement and is the comparable
foundation for HLA. The BCR covers major categories of risks, both direct and indirectthat impact G-SIIs. The BCR accounts for on- and off-balance-sheet traditional and nontraditional insurance exposures as well as non-insurance business including banking,non-insurance financial and other non-financial business.
27. Material liability and asset risks are covered by the BCR. The distinctions between longand short term liabilities are recognised. The focus of the design of the BCR is on therisks directly associated with the contingencies insured and other sources of risk for the
G-SIIs. While necessary in a comprehensive framework (like the ICS), some businessrisks are not explicitly considered. The explicit integration of other risk areas, such as
operational and liquidity risk, will require future consideration in the development of the
ICS, but that work is generally beyond the scope of the BCR development, except for
selected NI activities which are explained in section 3.4 and Annex E. The insurancecomponents are described in detail in section 3.3. The non-insurance activities are
addressed in section 3.4.

3.1 Application of BCR
28. The BCR will apply to G-SIIs only and serves as a comparable basis for the applicationof proposed HLA requirements. The IAIS has determined that the BCR will not apply toInternationally Active Insurance Groups (IAIGs) that are not G-SIIs.
29. Initially the BCR will be reported on a confidential basis to group-wide supervisors,
subject to access by the IAIS for refinement of the BCR, if necessary.
30. Consistent with the FSB mandate, the IAIS has also committed to developing a morerisk-sensitive global risk-based ICS by 2016, to be included as part of ComFrame andapplied to all IAIGs. Once developed and implemented, the ICS will be the foundation for
calculation of HLA for G-SIIs. The potential role of the BCR will be reassessed following
the development and refinement of the ICS.

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3.2 Required Capital
31. The BCR Required Capital is:
=

+

+

+

+

where:α (alpha) is the scalar (initially set at 100%) to determine the overall BCR
level13

ai, bi ci and di represent the factors applied to the exposures.

TLi, TNLi, NTi, and Ai represent the exposures (as per section 3.3)

NI reflects the charges provided by sectoral rules for non-insurance activities,
for example, Basel Accord requirements, established by the BCBS.

13

The BCR calibration level may be modified depending on the HLA requirements as well as refinement work
during the period of confidential reporting.
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3.3 Insurance
32. The IAIS has determined segments, factors and proxy measures for risk exposures
based on a combination of supervisory judgment informed by existing regulatory
requirements and derivation from field testing data. Further information about thisderivation is provided in Annex E.

BCR segment
Traditional Life (TL)
Protection life
Participating products14
Annuities
Other life
Traditional Non-life (TNL)
Property
Motor
Casualty
Other non-life
Non-Traditional (NT)
Variable annuities
Mortgage insurance
GICS & Synthetic GICS
Other non-traditional15
Assets (A)Credit - investment grade
Credit - non investment grade
Equity, real estate & non-credit
investment assets

Proxy measure for risk
exposure

Factor

Factorvalue

Net Amount At Risk
Net Current Estimate
Net Current Estimate
Net Current Estimate

a1
a2
a3
a4

0.06%
0.6%
1.2%
0.6%

Premium Measure
Net Current Estimate
Net Current Estimate
Net Current Estimate

b1
b2
b3
b4

6.3%
6.3%
11.3%
7.5%

Notional Value
Risk in Force
Notional ValueNet Current Estimate

c1
c2
c3
c4

1.2%
4.0%
1.1%
1.3%

Fair Value
Fair Value

d1
d2

0.7%
1.8%

Fair Value

d3

8.4%

33. All references to ‘Net Current Estimate’ in the table above are net of reinsurance ceded.

14

The IAIS recognises that some participating contracts have a risk profile lower than that of non-participating
business. This could be considered in a lower factor. However, a number of products with different risk profiles
were included in the participating products segment. The IAIS will assess whether improvements can be made to
the granularity of the definition of participating products during the confidential reporting period from 2015 to2018, in order to better evaluate the relative risk profiles.
15

The IAIS recognises that the “Other non-traditional” factor, when applied to the net current estimate proxy for
non-life risks, generates a lower charge than the factor for “Other traditional non–life insurance” which also uses
net current estimate as a proxy. This is due to the dominance of life insurance data in the other non-traditional
category and the limited amount of non-life insurance data in the other non-traditional category. A majority ofcurrent G-SIIs are engaged predominantly in life insurance business. Furthermore, the factors in the BCR alone
do not account for systemic risks. Further analysis as part of the HLA development, might lead to a refinement of
the proxy measure for risk exposure; the types of business that should be subject to an HLA uplift; and/or the risk
factor values.
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34. Premium measure is a function of net premium in respect of property damage, nonproportional property and catastrophe reinsurance. Further details are provided in Annex
E.
35. It is important to monitor the regulatory arbitrage opportunities between the banking andinsurance sectors, particularly as the BCBS requirements have been incorporated into
the BCR for banking activities. However, the analysis of the differences needs to remain
at a high level. The BCR includes capital charges for both assets and insurance
liabilities, consistent with their relative contributions to risk. The Basel framework is
primarily based on capital charges for assets and not liabilities. Therefore, a directcomparison between the two asset charges is not meaningful. However, the IAIS will
monitor whether the overall impact is comparable, during the period of confidential
reporting from 2015 to 2018.

3.4 Non-insurance
36. Non-insurance activities are addressed according to their nature and having regard to
any relevant global capital standard.
37. The NI component of BCR Required Capital will be:=

Regulated Banking requirement+x ∗ Non − Regulated Banking requirement+

Securities and other requirements

where the summations are taken over the appropriate number of entities.
38. For regulated banking activities, the Basel III Leverage Ratio will be applied.
39. For non-regulated banking activities, the Basel III Leverage Ratio will also be applied inorder to maintain a consistent treatment with that of regulated banking activities. That
capital requirement can be scaled up depending on the overall calibration level of theinsurance related BCR (by adjusting the scalar x in the above formula). Initially, thescalar x is set at 100%.
40. Financial activities which are subjected to neither banking nor insurance regulation, suchas some securities operations,16 are incorporated in the BCR by aggregating existing16

Some securities operations fall in the scope of either banking or insurance regulation. These are not intended
to be included in this paragraph. The IAIS assumes that such operations are already covered by theconsideration of the respective sectoral requirements of the insurance-related BCR. Additional consideration may
be given in subsequent BCR analysis and calibration to the optimal way to incorporate off-balance sheet
securities activities.
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global capital requirements for such non-bank, non-insurance (NBNI) financial activities.
In particular, third party asset management is a material activity for a number of G-SIIs.
Such activities generate risk including operational risk and the IAIS is committed toincluding a capital charge for these activities in the BCR. The FSB, in cooperation withIOSCO and other standard-setting bodies where relevant, will begin work to develop
within the SIFI policy framework the incremental policy measures needed to address thesystemic risks posed by NBNI SIFIs, once the identification methodologies have been
finalised and published. In the interim, the IAIS will apply the standard indicator method
for addressing operational risk of asset management activities in Basel II.17 Currently thisis 12% of gross income from such activities, but this is expected to be reviewed by the
BCBS.
41. Non-financial activities are activities conducted by non-financial entities that do not
engage in insurance, regulated banking, unregulated banking or securities
activities. Activities conducted by non-financial entities will be considered as nonfinancial activities unless they qualify as shadow banking as defined by the FSB.18
Material non-financial activities will be subject to appropriate capital requirements which
will be developed during the period of confidential reporting. Non-material, non-financial
activities will not receive a risk charge under the BCR and will be excluded from capital
resources. This approach is consistent with the simple straightforward approach of BCR.
The possibility of using a more risk sensitive treatment of non-financial activities will berevisited during ICS development.

17

Paragraph 654 of the Basel II Comprehensive Version (http://www.bis.org/publ/bcbs128.pdf).

18

For example, an entity that manufactures motor vehicles that has a derivative portfolio would consider that
activity as a non-financial activity.

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3.5 Indicative capital allocation
42. From the data provided by the G-SIIs, the factors above result in the following allocationof capital to the components of the BCR.

3.6 BCR principles
43. The BCR has been developed to reflect the principles that were published in December
2013 and are restated in Annex A. For example:

Major risk categories have been reflected through both the selection of highlevel risk exposures and the selection of related segments.



Options for adequate comparability have been investigated through the fieldtesting exercise and the use of Current Estimates of liabilities andadjustments to GAAP balance sheets have been selected to provide
adequate comparability.



Resilience to stress has been difficult to assess at this stage, as only static
information is available from the field testing exercise. Further investigations
are to be conducted using information from confidential reporting of the BCR
as well as 2015 field testing.

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

The BCR design is relatively simple, compared to the complexity of the risks
that are being assessed.



The BCR structure and its applicability appear consistent for the target
universe of insurance groups, the G-SIIs.



Transparency of the BCR is affected by differences in what data is currently
public in different jurisdictions, so transparency would be improved if all GSIIs were required to publish the specified components of the BCR
calculation, after the period of confidential reporting ends.

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4

Qualifying Capital Resources

44. Capital resources are determined on a consolidated basis for all financial activities as
defined in Annex D.19
45. The BCR defines Qualifying Capital Resources as either Core or Additional.
46. The G-SII’s core capital is comprised of qualifying financial instruments and capitalelements other than financial instruments that contribute to financial strength, absorb
losses both on a going-concern and winding-up basis and otherwise contribute tosurvival through periods when the G-SII is under stress.
47. The G-SII’s additional capital is comprised of qualifying financial instruments and capitalelements, other than financial instruments, that protect policyholders in winding-up. The
key characteristics of capital instruments that qualify as additional capital aresubordination and availability to absorb losses in winding-up.

4.1 BCR Ratio
48. The BCR status of an insurance group is captured by its BCR Ratio:
BCR Ratio = Total Qualifying Capital Resources (for BCR) / Required Capital (for BCR)
Capital composition limit: For the purposes of the BCR Ratio, Qualifying Additional Capitalcannot exceed 50% of Required Capital (for BCR).20

4.2 G-SII capital resources
49. The data collected from G-SIIs during field testing shows that the majority of capital
resources is classified as core rather than additional capital. On average, approximately
83% of G-SII GAAP capital resources are classified as core.

19

See section 3.4 for details of the treatment of non-financial activities.

20

This limit will be reexamined once HLA is developed.

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5Market Adjusted Valuation Approach

50. In order to satisfy BCR Principle 2, comparability of outcomes across jurisdictions, theinputs into the BCR formula need to be comparable. The balance sheet of a G-SII will
provide the underlying exposures for many of the factors in the BCR formula. In addition,
the balance sheet provides the foundation for determining capital resources. Both thecapital requirement and the capital resources need to be comparable. Therefore, it isimperative that the starting point is comparable valuation.

5.1 Valuation principles
51. A Market Adjusted Valuation Approach is the valuation approach to be initially adopted
for the BCR. This will be reviewed, as the IAIS develops the valuation approach for ICS
purposes. Under this approach, the G-SII starts with the amounts as reported on its
audited, consolidated, general-purpose balance sheet, whether reported on an IFRS or
GAAP basis.
52. G-SIIs are not required to revalue every balance sheet item to a market based
methodology. G-SIIs are required to make adjustments to major balance sheet items,
more specifically:a. Insurance liabilities and reinsurance balances are to be adjusted based on thespecification in Annex C.
b. Financial instruments, both assets and liabilities, including derivatives andmortgages/ loans made,21 are to be adjusted to fair value as determined under the GSII’s applicable IFRS or GAAP standards for reporting or disclosure purposes.
53. The valuation of assets and liabilities other than insurance liabilities and financial
instruments are based on IFRS or GAAP valuations, as applicable for consolidated
audited general-purpose financial statements.
54. From the data collected in field testing, it is apparent that the key difference in the IFRSor GAAP valuation and the market adjusted valuation of insurance liabilities is due to therecognition of the Margin Over Current Estimate (MOCE) in capital resources. The
exclusion of margins from liabilities increased core and total Qualifying Capital
Resources significantly. This treatment of MOCE will be applied in order to achieve the
BCR’s objective of serving as a comparable basis for HLA amongst G-SIIs. The
treatment will be further investigated during the development of the ICS.

21

In this context, mortgages/loans made means mortgages/loans that the G-SII has invested in or itself written as
the originator.
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6Impact on G-SIIs

6.1 Calibration Level and Capital Resources
55. The primary focus of BCR field testing has been to examine the potential impact of the
BCR on G-SIIs. However, additional IAIGs participated in field testing and provided
meaningful information that contributed to the development of BCR. By targeting the
BCR between the upper and lower thresholds for supervisory intervention (e.g. typicallybetween the PCR and the MCR), frequent breaches are not expected assuming normal
business conditions. Field testing has analysed the level of the BCR compared to thereported PCR of volunteers. For the G-SIIs, the average level of the BCR is 75% of theirreported PCR when the alpha scalar of 100% is applied. For all volunteers considered,
the average level of the BCR is 67% of the reported PCR when the alpha scalar of 100%is applied.
56. Field testing has also analysed the level of the BCR compared to the reported total
capital resources of volunteers.
57. For G-SII volunteers, the reported total Qualifying Capital Resources represent 380% of
the BCR and the core Qualifying Capital Resources are 332% of the BCR. For allvolunteers, the reported total Qualifying Capital Resources represent 427% of the BCR
and the core Qualifying Capital Resources are 384% of the BCR.

6.2 Reporting and Applicability
58. Initially, the BCR will be reported on a confidential basis to group-wide supervisors,
subject to access by the IAIS for refinement of the BCR, if necessary. The IAIS will
maintain appropriate governance and security protocols to protect the confidentiality of
the information collected. The IAIS will review the suitability of the BCR factors over timeto ensure that the BCR remains fit for purpose.

6.3 Implementation of the BCR
59. Once the BCR has been approved by the FSB and endorsed by the G20 Leaders
Summit, responsibility for implementation of the BCR will be held by the relevant
authorities in each jurisdiction.

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7Communication plans and next steps

60. This BCR document will be published following endorsement by the FSB in October
2014.
61. The IAIS intends to publish the documents used for 2015 field testing data collection inorder to enhance transparency to the public. Additional aggregate summary results from2014 field testing will also be published to enhance transparency but in a manner suchthat individual volunteers cannot be identified. A consultation paper on HLA is scheduled
for publication in 2015. This paper will address the proposed linkages between the BCR
and HLA and how the combination of BCR plus HLA will meet the policy objectives
outlined in the G-SII policy measures paper published in July 2013.
62. Key milestones for the implementation of the BCR and the development of related global
standards HLA and ICS are:
Expected
timingNovember 2014
December 2014
From 2015
February 2015
March toSeptember 2015
November 2015
March toSeptember 2016
December 20162017 and 2018
Late 2018
From 2019
From 2019

Key milestone
G20 Leaders expected to endorse the BCR proposal
Initial consultation document on ICS released
Confidential reporting of BCR to group-wide supervisors with access by the IAIS
for the purpose of reviewing and refining the BCR (to be provided in conjunction
with the IAIS field testing process)Deadline for responses to the ICS consultation document
Field testing of HLA and ComFrame, including ICS
HLA proposal to be finalised & endorsed by G20
Further field testing of ComFrame, including ICS
ICS to be agreed, subject to further refinement via field testing
Further refinement of ComFrame, including ICS, via field testing
ComFrame, including ICS, to be adopted by IAIS
Implementation of ComFrame, including ICS, to commence
HLA commences to apply to G-SIIs, initially based on BCR as a foundation, later
to be based on ICS as a foundation

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Annex A – BCR Principles
1.
The development of the BCR has been guided by 6 main principles which weredetailed in the first BCR consultation document. These principles provide a high level
framework against which approaches and proposals may be reviewed. The principles are:Substantive principles:
2.
BCR Principle 1 - Major risk categories should be reflected. The BCR must reflect
major insurance risks including risks from both assets and liabilities, and non-insurance
risks.
3.
BCR Principle 2 - Comparability of outcomes across jurisdictions. Outcomes should
be comparable across jurisdictions. This implies the need to minimise distortions, including
those arising from differing levels of conservatism included in valuation processes. The levelof discretions that may be applied or introduced should be minimised across jurisdictions
and over time.
4.
BCR Principle 3 - Resilience to stress. The BCR should be able to function in a wide
variety of circumstances (including a stressed macro environment) and remain valid.
Approaches adopted should be testable against historic data and circumstances to reflect
the impact of major drivers of experience that are appropriate for basic capital requirements.

Construction principles:
5.
BCR Principle 4 - Simple design and presentation. The design of the BCR needs tobe pragmatic and practical. The form of presentation of the BCR, focusing on meaningfulcommunication to external parties, should be “simple” and “intuitive” at a high level, yetsufficiently granular for the results to be fit for purpose. The BCR should utilise the minimum
number of parameter and data requirements while attaining valid and robust outcomes witha focus on material issues.
6.
BCR Principle 5 - Internal consistency. The structure of the BCR needs to beconsistent and should be applicable over the range of insurance and non-insurance entities
it will need to cover and over time.
7.
BCR Principle 6 - Optimise transparency and use of public data. The level oftransparency, particularly with regard to the final results provided, and the use of public data
should be optimised.

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Annex B – Glossary
Abbreviation

Meaning

ALM

Asset Liability Matching

BCBS

Basel Committee on Banking Supervision (also Basel Committee)

BCR

Basic Capital Requirements

BCR Ratio

Ratio of Qualifying Capital Resources divided by the Required Capital.

ComFrame

Common Framework for the Supervision of Internationally Active Insurance Groups

DTAs

Deferred Tax Assets

DTLs

Deferred Tax Liabilities

FSB

Financial Stability Board

GAAP

Generally Accepted Accounting Principles

GICs

Guaranteed investment contracts

G-SIIsGlobal Systemically Important Insurers

G20Group of Twenty Countries

HLA

Higher Loss Absorbency

IAIGs

Internationally Active Insurance Groups

IAIS

International Association of Insurance Supervisors

IASB

International Accounting Standards Board

ICP

IAIS Insurance Core Principle

ICS

Risk–based global Insurance Capital Standard

IFRS

International Financial Reporting Standards

IOSCO

International Organization of Securities Commissions

MCR

Minimum Capital Requirement

MOCE

Margin Over Current Estimate (for BCR purposes)

NAAR

Net Amount at Risk

NTNI

Non-traditional Insurance and Non-insurance (activities)

PCR

Prescribed Capital Requirement

Other important terms
Qualifying Capital
Resources

The amount of qualifying capital resources available for BCR purposes

Required Capital

The amount of capital required to satisfy the BCR

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Annex C – Insurance Liabilities and Reinsurance Recoverables
Segmentation
1. The allocation of insurance liabilities to the lines of business should follow the
principle of substance over form. This means insurance liabilities should be allocatedto the lines of business which best reflect the nature of the underlying risks.
Segmentation should be based on the nature of the risks underlying the contract(substance) rather than the legal form of the contract (form).
2. The application of this principle implies that the legal classification of insurance
contracts, for authorisation or accounting purposes, is not the determining criteria forsegmentation.
3. The segments to be used for valuation and BCR reporting are shown in Annex F.
Market Adjusted Valuation Approach – Methodology for calculation of Current
Estimate
Basis for calculation
4. The Current Estimate should correspond to the probability-weighted average of thepresent values of the future cash flows associated with insurance liabilities
discounted using the relevant interest rate term structure to derive a present value.
This applies equally to the calculation of reinsurance recoverables. Reinsurance
recoverables need to be calculated so that they are consistent with the Current
Estimates of insurance liabilities. Therefore the same assumptions and inputs should
be used.
5. The calculation of the Current Estimate is based upon up-to-date and credible
information and realistic assumptions. Implicit or explicit margins are not part of theCurrent Estimate. The determination of Current Estimate has to be comprehensive,and objectivity is required in terms of observable input data.
6. Uncertainty in the future cash-flows should be captured in the Current Estimate.
Uncertainty in cash flows can arise from a number of sources, namely: (1) the timing,
frequency and severity of claim events; (2) claims amounts and the period needed tosettle claims; (3) the amount of expenses; (4) the value of an index/market values
used to determine claim amounts; (5) policyholder behaviour; and (6) pathdependency. The calculation should consider the variability of the cash flows in orderto ensure that the Current Estimate represents the mean of the distribution of cash
flow values.
7. By definition, the Current Estimate is the average of the outcomes of all possible
scenarios, weighted according to their respective probabilities. However, it may not
be necessary or even possible to explicitly incorporate all possible scenarios in thevaluation of insurance liabilities, or to develop explicit probability distributions in all
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cases. This depends mainly on the type of risks affecting the scenarios and the
expected materiality of their financial impact in the overall calculation.
8. When valuing insurance liabilities no adjustment to take account of the own credit
standing of the G-SII should be made.
Cash-flow projection
9. Cash flow projections should reflect expected realistic future demographic, legal,
medical, technological, social or economic developments. Appropriate inflation
assumptions should also be incorporated in the cash flow projections, appropriately
recognizing the different types of inflation to which the entity can be exposed (e.g.
consumer price index, medical inflation and salary inflation). Premium adjustment
clauses, where relevant, may also need to be considered.
10. The Current Estimate should be calculated gross of recoverables from reinsurance
and special purpose vehicles. Recoverables from reinsurance or special purpose
vehicles should be separately calculated and recognized as an asset.
11. The cash-flows to be included in the calculation of Current Estimate should, at least,
include:

benefit and claim payments

direct and indirect expenses to be incurred (a non-exhaustive list of examples
could include: administrative expenses; investment management expenses;
future acquisition expenses; claims management expenses; and, handlingexpenses)

premiums to be received, provided they are included within the contract
boundaries

subrogation payments and recoveries other than reinsurance and special
purpose vehicleother payments to be made which are necessary in order to settle the claims.

12. In determining the Current Estimate, G-SIIs should take into account taxation
payments which are charged to policyholders.
Recognition / Derecognition of insurance liabilities
13. Without prejudice to the specifications set in the “contract boundaries” section, aliability should be recognised and valued as soon as the G-SII becomes party to acontract, without any possibility to amend or cancel it, even though the insurance
coverage has not started yet.
14. A contract should be derecognised when all possible claims linked to this contract
have been completely settled, and all future cash-flows are certainly nil.

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Example
Consider a contract providing a health coverage starting on 1 March 2014. The contract has
been underwritten on 20 December 2013, with no possibility to change the terms of thecontracts before the coverage starts. On 31 December 2013, this contract should berecognised in the balance sheet.
Contract Boundaries
15. Only contracts existing at the valuation date, and recognised in line with previous
section, should be taken into account. This provision implies that no future businessshould be taken into account for the calculation of insurance liabilities.
16. Any obligations, including future premiums, relating to the contract shall belong to thecontract. However, future premiums (and associated claims and expenses) relating
to an existing and recognised contract beyond the following dates should not be
considered in insurance liabilities, unless the G-SII can demonstrate that they areable and willing to compel the policyholder to pay the premiums:
The future date where the G-SII has a unilateral right to terminate the contract
or reject the premiums payable under the contract;

The future date where the insurance or reinsurance undertaking has aunilateral right to amend the premiums or the benefits payable under thecontract in such a way that the premiums fully reflect the risks.

17. For group policies, similar rules apply. If premiums can be amended unilaterally forthe entire portfolio in a way that fully reflects the risks of the portfolio, the second
condition above will be fulfilled for group policies.
ExampleConsider a whole life policy, with a level premium. According to the terms of the insurance
contract, the G-SII cannot reject any premium, and the premium is constant throughout thelife of the contract. Therefore, all (probability-weighted) future premiums of this contract
should be taken into account in the insurance liabilities, along with the related claims andexpenses.

ExampleConsider a health policy (medical expenses), starting on 1 July 2013, with a premium paid
monthly. Premium indexation is possible at each anniversary date, and the policyholder has
no right to cancel the policy during the first 12 months. On 31 December 2013, insurance
liabilities should include 6 months of future premiums (January to June 2014), along with therelated claims and expenses.

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Example
Consider an annually renewable life protection policy sold on a group basis. The G-SII does
not manage this portfolio on a contract-by-contract basis, but can freely adjust the premiums
for the entire portfolio at the policy anniversary date, to fully reflect the risks stemming fromthat portfolio. In this case, the conditions defined in paragraph 16 above are deemed
applicable. The calculation of Current Estimates should not include any premiums beyond
the next future anniversary date where such adjustment is possible, along with the related
claims and expenses.

Time horizon
18. The projection horizon used in the calculation of the Current Estimate should cover
the full lifetime of all the cash in- and out-flows required to settle the obligations
related to existing insurance and reinsurance contracts on the date of the valuation.
Data quality and setting of assumptions
19. When selecting data for the calculation of the Current Estimate, G-SIIs should
consider:

the quality of data, for different data sets, based on the criteria of accuracy,completeness and appropriateness;

the use and setting of assumptions made in the collection, processing andapplication of data;the frequency of regular updates and the circumstances that trigger additional
updates.

20. In some cases, only limited or unreliable data may be available from the G-SII’s own
experience of a particular type of contract or claim from which to base an assumption
for that contract or claim. Historical data about the G-SII’s own experience should be
supplemented when necessary with data from other sources. Adjustment should bemade to these alternatives sources so that they are more consistent with the risk
characteristics of the portfolio considering in particular whether:

the characteristics of the portfolio differ (or will differ, for example because ofadverse selection) from those of the population that has been used as a basis
for the historical data;

there is evidence that historical trends will not continue, that new trends will
emerge or that economic, demographic and other changes may affect the
cash flows that arise from the existing insurance contracts; orthere have been changes in items such as underwriting procedures andclaims management procedures that may affect the relevance of historical
data to the portfolio of insurance contracts.

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21. When calculating the Current Estimate consideration should be given to events not
captured in the data that can impact the Current Estimate.
22. Consistency across assumptions is important to consider, for example therelationship between inflation and interest rates.
Possible methodologies
23. The calculation of insurance liabilities is typically based on valuation models. Where
this is the case, these models should be comprehensive, transparent, based on
current and reliable data, and use appropriate actuarial and statistical methods.
Valuation models and their parameters should be calibrated as much as possible on
the basis of objectively observable data.
24. G-SIIs should use actuarial and statistical techniques for the calculation of theCurrent Estimate which appropriately reflect the risks that affect the cash flows. This
may include simulation methods, deterministic techniques and analytical techniques.
Following the application of the proportionality principle,22 in the case of more
complex cash flow projections (e.g. future discretionary benefits relating toparticipating contracts or embedded options and guarantees), simulation techniques
may lead to more robust valuation results. In other cases, deterministic and analyticaltechniques may be more appropriate.
Liabilities expressed in different currencies
25. Discounting of liabilities needs to occur with a yield curve relevant to the particularcurrency. Conversion to the reporting currency from different currencies should be
carried out according to the jurisdictional GAAP for consolidated group reporting.
This will usually result in conversion at the currency conversion spot rate at thereporting date.
Valuation of options and guarantees
26. Insurance contracts often include embedded options and guarantees, such as
guarantees of minimum investment returns (including as part of death benefits),
maximum charges for mortality, surrender options, or options for the policyholder toreduce or extend coverage. Expected cash flows for these options and guarantees
should be included in the cash flows to determine Current Estimates. Expected cash
flows should reflect expected policyholder behaviour. For the calculation of the timevalue of options and guarantees all payments which are connected to the insured
risks have to be considered, especially profit participations.

22
Proportionality principle: when the G-SII can demonstrate that taking into account a specific factor / rule in theircalculation or valuation would lead to a significant increase in complexity, without material improvement to thequality of the figure produced, or to the assessment of risk linked to this figure, then this factor or rule can beignored or simplified.

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27. Ideally, options and guarantees should be valued using stochastic approaches.
However, for the purposes of initial reporting and subject to a materiality assessment,
simplified deterministic approaches can be used.
Policyholder behaviour
28. Expected cash flows should reflect expected policyholder behaviour, particularly
where the options or guarantees allow policyholders to take actions to change theamount, timing or nature of the benefits they will receive. In the case of long term
contracts, options available to policyholders can include the termination of a contract,
guaranteed living benefits, guaranteed income benefits or any other contractual
options.
29. The likelihood that policyholders will exercise contractual options should be taken
into account, considering in particular:past behaviour of policyholders

how beneficial the exercise of options would be to policyholders under
specific circumstances

economic conditions

past management actions.

30. The likelihood that policyholders will exercise contractual options, including lapses
and surrenders, shall be based on a prospective view of expected policyholder
behaviour that makes appropriate and justified assumptions about the elements
mentioned above.
31. The assumptions on policyholder behaviour should be appropriately founded instatistical and empirical evidence, to the extent that it is deemed representative of the
future expected behaviour.
32. Policyholder behaviour is driven by convenience and other considerations and not
purely financial self-interest (or may appear as such to the G-SIIs due to the lack ofknowledge of the specific circumstances of the policyholder). Realistic current
expectations would incorporate at least some policyholder action or inaction
consistent with observed policyholder behaviour.
33. The assumptions concerning policyholders’ behaviour would need to be consistent
with the assumptions for investment returns and should not, in general, be assumed
to be independent from financial markets. For instance policyholders’ behaviour may
be linked to the interest rate scenario and associated assumptions.
34. Ideally, the quantification of the impact on the Current Estimate of optionality or othernon-symmetric cash flow could be done using a stochastic method considering theentire range of scenarios.

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Valuation of future benefits (discretionary vs. non-discretionary)
35. All future benefits that are non-discretionary should be included within the projectionof cash flows according to the contractual obligation of the G-SII and the economic orloss scenarios applicable for the Current Estimate.
ExampleFor bonuses or crediting rates, the Current Estimate should recognise the amounts expected
to be paid consistent with the expected future experience and economic scenarios for which
the liability valuation is based. For example, if a reference group of assets is expected toearn a greater amount than the contractual crediting rate and discretionary additional credit
rates can be declared, the expected discretionary crediting rate should be taken into
account. This projection should be consistent with the yield curve that is used to discount the
cash flows for the contract.
36. Discretionary benefits and the exercise of policyholder options should usually be
included in the projection of cash flows. The application of discretions often drive
policyholder behaviour and so must be considered along with options andguarantees embedded within policies. A Current Estimate of cash flows will include
the value of cash flows as a result of the exercise of discretions consistent with theassumed policyholder behaviour and other valuation assumptions.
Management actions
37. When calculating the Current Estimate, the G-SII’s future management actions could
be taken into account if they can reasonably be expected to be carried out under the
specific circumstances to which they are applied.
38. Management actions should be objective, realistic and verifiable. They cannot be
contrary to the G-SII’s obligations to policyholders or to legal provisions applicable to
the G-SII. Assumed future management actions should be consistent with the G-SII’s
current business practice and business strategy unless there is sufficient evidence
that the G-SII will change its practices or strategy.
39. Assumed future management actions shall be consistent with each other. The
assumptions about future management actions should take into account the timeneeded to implement them and any expenses caused by them.

Simplifications/approximations and appropriate adjustments (application of the
Proportionality principle)
40. Where existing approaches (GAAP or economic valuation) provide a reasonably
close approximation to the valuation principles outlined above for the market adjusted
valuation approach, it is acceptable to use these valuation frameworks as starting
points and apply adjustments.
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41. Possible adjustments could include approximating the market-adjusted value by
using sensitivities of economic values to using different yield-curves for discounting.
42. For insurance business not including embedded options and guarantees (in particularinsurance liabilities related to non-Life insurance), there might be no need to perform
stochastic valuations. In that case, the adjustment of GAAP values based on
management’s best estimates for determining market-adjusted values could be
limited to applying discounting to the insurance liabilities which were determinedaccording to GAAP.
Discounting
43. Current Estimates of insurance liabilities (and related reinsurance recoverables) areto be calculated using the IAIS specified discount curves.
IAIS Specified Discount Curves
44. The main objective of applying IAIS specified discount curves is to improvecomparability. As such, the initial approach chosen for the BCR does not pre-empt
the future development of alternative comparable approaches to discounting theCurrent Estimate that may better reflect the long term nature of insurance liabilities
and that could be eventually used as part of IAIS standards. That applies to both themechanics of the curve as well as any factors used in the calculation for the
purposes of the field test.
45. The IAIS specified discount curves are based on risk adjusted liquid interest rate
swaps or government bonds (in cases where the latter are considered being more
liquid) and some adjustment based on investment grade corporate bond indices.
46. The curves provided to volunteers for field testing were based on calendar year end
2013 market data for swaps and government bonds as well as an adjustment basedon a relevant investment grade corporate bond index. To derive the full curve (before
adjustment), the Smith Wilson technique was used. This technique is amacroeconomic approach: A spot (i.e. zero coupon) rate curve is fitted to observed
prices of financial instruments. For the purpose of the field test the curves were flat
after 30 years.
47. Adjustment: For the field testing exercise the adjustments were grouped by threedifferent buckets: (1) adjustment for currency/jurisdiction identity, (2) adjustment for
currency unions, and (3) adjustment for markets with small corporate bond markets
48. The basis for the adjustment was an investment grade corporate bond or broad
market index (i.e. basket of liquid bonds with a credit rating from AAA to BBB), where
they were available.

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49. The adjustment was calculated as a fixed percentage upward shift and was based on
the 10 year unadjusted rate (where available).23 Forty percent of the actual corporatebond spread was used for the adjustment.24 The percentage adjustment that wasapplied to the curve was then relative to the (10 year) basic risk free rate. The
adjustment was capped at the absolute spread as calculated at 10 years.
=

40%

,

50. In case of currency unions, such as the Eurozone, both government bond andcorporate bond spreads were taken into account. The adjustment has regard to theaverage composition of G-SIIs’ assets between government bonds and corporate
bonds. The adjustment is calculated as:
Weight_Govt * Relevant_Spread_Govt +Weight_Corp * Relevant_Spread_Corp.
51. For markets where a number of indicators (e.g. lack of index, low amountoutstanding, few bonds high quality bonds) suggest that the corporate bond market
does not allow considerable investments by G-SIIs, a simple assumption was madethat the adjustment would be 50bp. For future field testing exercises, further
investigation will be undertaken on the development of the local corporate bondmarkets.
52. The IAIS provided the discount curves for a number of currencies/jurisdictions. To
ensure comparability, for a given currency, each volunteer firm was required to use
the relevant curve provided by the IAIS. The IAIS will publish the yield curves for use
in conjunction with quantitative field testing exercises from 2015 to 2018. From 2019,
another publication method will be considered.
Curves not provided centrally
53. The IAIS will not provide discount curves for all currencies and countries where GSIIs operate. In those cases, the G-SIIs are required to derive the curve following theapproach set out above by complying with the principles presented above.
Method to derive risk free term structure for field testing purposes
54. For discount curves that are not centrally provided, the G-SIIs are required to takethe following aspects into account, when deriving the basic risk free curve:

23

The reason for using the 10 year rate as a basis for the adjustment is that in order to be representative, a
corporate bond index is needed that is liquid and largely representative of the market (i.e. covers a sufficiently
large number of bonds).

24
This spread adjustment is universal and no distinction is applied among the products to which it is applied. For
example, even a product that could be surrendered at any time without penalty applies the same curve. This wasdone as a simplification. The IAIS will evolve its approach to determining yield curves during the confidential
reporting period with particular consideration of long-term guaranteed products.

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The risk free interest rate term structure should be determined on the basis ofmarket data as of the valuation date.



The relevant data should either be swaps or government bonds, both
adjusted for credit risk. In the rarer case where neither is available, otherfinancial instruments that are similar to swaps can be used, subject toappropriate credit risk adjustment.



If the risk free rate is derived by using swaps, an appropriate (flat) basis point
adjustment to the swap rates should be applied. The credit risk of sovereigns
could be measured by looking at CDS premiums on government bonds. It is
recognised though, that under certain market circumstances the relationshipbetween government bonds and CDS prices can be weak.

The rates should be based on financial instruments for which a reliable
market value is available. This requires a deep, liquid and transparent market.



Where the credit risk assessment lacks a sufficiently robust basis, theadjustment should be approximated by multiplying the credit risk adjustment
used for USD multiplied by the respective interest rate differential.

The interpolation should be done in line with the approaches mentioned in thetechnical specifications. However, a simple linear interpolation between theobserved spot rates is also acceptable.

The particular case of obligations replicable by a portfolio of assets
55. Where future cash flows associated with insurance obligations can be replicatedreliably using financial instruments for which a reliable market value is observable,
the value of insurance obligations associated with those future cash flows could bedetermined on the basis of the market value of those financial instruments.
56. The cash flows associated with insurance obligations cannot be reliably replicatedwhen:

policy holders can exercise contractual options, including lapses andsurrendersobligations depend on mortality, disability, sickness and morbidity rates



expenses associated with insurance obligations cannot be reliably replicated.

57. Financial instruments used to value insurance obligations must be traded in deep,
liquid and transparent (DLT) markets.
Other Liabilities
58. For the market-adjusted valuation approach, liabilities will be reflected at a marketvalue that does not take into account changes in the credit standing of the G-SII.

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Annex D – Qualifying Capital Resources
1. The BCR defines Qualifying Capital Resources as either Core or Additional.
2. The G-SII’s core capital is comprised of qualifying financial instruments and capitalelements other than financial instruments that contribute to financial strength, absorb
losses both on a going-concern and winding-up basis and otherwise contribute tosurvival through periods when the G-SII is under stress.
3. The G-SII’s additional capital is comprised of qualifying financial instruments and capitalelements, other than financial instruments, that protect policyholders in winding-up. The
key characteristics of capital instruments that qualify as additional capital aresubordination and availability to absorb losses in winding-up.
4. Qualifying capital resources include the following:
Financial Instruments
5. Financial instruments are classified as capital resources where those instruments:25


are availableare not undermined or rendered ineffective by encumbrancesare subordinated to the rights of its policyholders in an insolvency or windingup. Policyholder priority order should not be compromised by guarantees or
security arrangements given by either the G-SII or another related entity forthe benefit of holdershave a level of distribution that is neither tied nor linked to the credit standingor financial condition of the G-SII or another related entity, such that those
distributions may accelerate insolvency.

6. Financial instruments are classified as Core Capital where those instruments:25



do not have a fixed maturityare not retractable by the holderare not redeemable within the first five years after issuance

require that redemption is subject to review or approval from the relevantsupervisorare fully paid-uphave distributions (e.g. dividends and coupon payments) thatcancelled without the risk of invoking default or triggering insolvency

with distributions that are cancellable are non-cumulative

can beAvailability and subordination may be encumbered if there is any arrangement or connected transaction thatprevents the financial instrument from meeting the criteria.

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

have no fixed serving costs (e.g. fixed interest payments and principal
repayments)are free from charges, claims or other hindrances and do not include a rightby the holder to receive compulsory payments.

7. Where financial instruments do not meet the criteria for classification as Core Capital,
they may be classified as additional capital where those instruments:

have an initial maturity of at least five years, where the instrument’s limited
protection as it nears maturity is captured either:by the notional amount of the instrument being amortised on astraight-line basis in the final five years to maturity

due to the existence of a requirement for the G-SII to suspend
repayment or redemption if it is in breach of its capital requirement or
would breach it if the instrument is repaid or redeemed

require that redemption is subject to review or approval from the relevantsupervisor

give holders no rights to accelerate the repayment of future scheduled
principal or coupon payments, except in bankruptcy, insolvency, winding-up
or liquidation.

8. G-SIIs will only be permitted to include non-paid-up capital items (e.g. unpaid preference
shares, unpaid subordinated debt, letters of credit, guarantees) in additional capitalwhere those items contain legally binding commitments that increase the amount ofqualifying paid-up capital at the discretion of the G-SII, at any time. Non-paid-up capital
items are limited to an amount not greater than 10% of BCR. Non-paid-up capital items
that qualify as additional capital are subject to supervisory review or approval.
Elements Other than Financial Instruments
9. Core Capital elements other than financial instruments may include, for example:
Retained earningsSurplus fundsContributed surplus

Paid-up initial funds (e.g. mutual entities)

Non-participating account (e.g. mutual entities)

Participating policyholders’ equity or account (e.g. joint stock entities)



Accumulated Other Comprehensive Income (AOCI)

Margins Over Current Estimates (MOCE)/Reserves included in GAAP equity
or otherwise allocated to equity.

10. Capital instruments issued by a fully consolidated regulated financial subsidiary of the GSII to third-party investors (minority interests) may be recognised as consolidated Core
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capital of the G-SII only if the instrument meets or exceeds all of the criteria forclassification as Core capital.
11. Capital instruments issued by a fully consolidated regulated financial subsidiary of the GSII to third-party investors may be recognised as consolidated Additional capital of the GSII only if the instrument meets or exceed all of the criteria for classification as Additional
capital.
Adjustments, exclusions and deductions
12. The following items are excluded or deducted from Core Capital:26a) Goodwillb) Intangible assets, including computer software intangiblesc) Each net defined benefit pension plan asset, where it cannot be easily and promptly
accessed for the own use and on-going operations of the G-SIId) Deferred Tax Assets (DTAs), which rely on the future profitability of the G-SIIe) Reciprocal cross holdings, arranged either directly or indirectly between financial
institutions and which artificially inflate the Core Capital position of the G-SII
f)

Direct investments in own shares and in own Core Capital financial instrumentsg) Reinsurance assets arising from arrangements deemed to constitute non-qualifying
reinsurance i.e. those without an executed and legally binding contract (subject to a
six-month grace period from the effective date of reinsurance coverage)h) Total secured (encumbered) assets in excess of the sum of:othe value of the G-SII’s on-balance sheet liabilities secured by the(encumbered) assets; plusothe value of the G-SII’s incremental supervisory capital requirements forliabilities secured by the (encumbered) assets; plusothe value of the G-SII’s incremental supervisory capital requirements forsecured (encumbered) assets

No deduction is required for encumbered assets relating to off-balance sheet
securities financing transactions (e.g. securities lending and borrowing, repos andreverse repos) that do not give rise to any liability on the balance sheet.
13. The following items are excluded or deducted from additional capital:o

Reciprocal cross holdings, arranged either directly or indirectly between
financial institutions and which artificially inflate the additional capital positionof the G-SIIoDirect investments in own additional capital financial instruments.

14. The following items, though excluded or deducted from Core Capital, are added back or
included in additional capital:
26

Items (a) to (d) should be net of associated DTLs.

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oRealisable value of net DTA which relies on future profitabilityoRealisable value of computer software intangibleso

50% of each net pension plan asset, net of any eligible DTLs.

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Annex E – BCR Formula and Derivation
This annex provides an explanation of the derivation of the various components of the BCR
formula. It also provides commentary on the rationale for implicit rather than explicit
treatment of elements, such as ALM and diversification.
1. The BCR Required Capital formula is as set out in section 3.2
=

+

+

+

+

Insurance Component
2. The process for determining the factors to be applied to the insurance component in theformula above was essentially done in two separate steps. The factors relating to the risk
exposures (a1, a2, to d3) were derived separately from the alpha scalar ( ) . Thisfacilitated the separation of the analysis required to derive the risk profile of the BCR
from the wider discussion of how the overall level of the BCR should be calibrated.
3. The alpha scalar is set at 100%; however, that decision is subject to further
consideration in the context of the development of HLA. In determining the level of the
BCR, the IAIS has targeted a level between the upper and lower thresholds ofsupervisory intervention, such that frequent breaches are not expected assuming normal
market conditions. As set out in section 6 of the report, the data has shown that for the
G-SIIs the average level of the BCR is 75% of the reported PCR when the scalarparameter (alpha) of 100% is applied.
Risk exposure factors
4. Risk exposure factors were derived from supervisors’ responses to a questionnaireseeking estimates of relative riskiness of various proxy measures of risk related todifferent asset and liability segments. Supervisors of jurisdictions in which most of the GSIIs are based and in which the G-SIIs have key operations provided estimates ofrelative riskiness which could be applied, based on their knowledge and actual
experience of the underlying risks and the G-SIIs.
5. This process yielded an interesting result, namely that even though the level of factors
differed between the various supervisors, the relative riskiness allocated to the different
exposure measures appeared similar, although there were significant differences insome estimates, especially in relation to asset risks.
6. Further analysis applying the estimated factors to the exposure data collected from thevolunteers showed that the ranking of Required Capital for G-SIIs using the different sets
of factors from the supervisors was similar even though the level of Required Capitaldiffered.
7. During the analysis, the key metrics considered were:
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The level of BCR compared to the level of PCR27
The ratio of Core Capital resources to BCR.

8. For those G-SIIs that provided sufficient data, comparison of the split of capitalrequirement over the risk exposures derived using the supervisors’ factors to thatprovided by the volunteers gave additional comfort that the overall allocation of risk
capital was appropriate.
9. As the relativity of the capital required for risks suggested by the supervisors was similar
but the calibration level diverged, a single set of parameters was developed based on
combining the parameters from the jurisdictions in which most G-SIIs are based.
Calibration was then carried out consistent with the objective of the targeting the BCR
between the upper and lower thresholds for supervisory intervention (e.g. typicallybetween PCR and MCR).
10. The process as described above has resulted in the factors shown in section 3.3.
11. Care should be taken when comparing factors. Different exposure measures are used,
resulting in different magnitudes of factors. As an example, Net Amount at Risk onprotection business will be a large amount as it represents the total exposure of the GSII. Any such factor applied to Net Amount of Risk will be much lower than a factor
applied to a different measure, such as a Current Estimate.
12. Even where factors are applied to the same exposure measure, care needs to be taken
when comparing the factors due to the different nature of the underlying risks. As an
example even though Current Estimate is used as an exposure measure for both life andnon-life business, the factors applied to the exposures are very different.
13. The Current Estimate for non-life business will typically be smaller than the Current
Estimate for non-protection life business, as it will be dependent on contingent low
probability events occurring. This in contrast to non-protection life business where there
will typically be a build-up of funds which will be paid out to the policyholder in the future.
Thus, even though the factors applied to non-life business are higher, they are applied toa smaller exposure.
Selection of the segments – general approach
14. The fifteen BCR insurance segments have been selected following consideration of all of
the sub-segments reported as part of field testing. This ensures the BCR formula avoids
unnecessary complexity while remaining sufficiently granular to provide a robust and risk
sensitive capital measure. In particular, the specific risk profile of the G-SIIs to which the
BCR is to be applied has been considered. As part of field testing, insurance wascaptured at the level of 26 sub-segments. All of these sub-segments have been mapped27

Not all G-SII jurisdictions have group-wide PCRs. However, for those G-SIIs which are not subject to a groupwide PCR, additional guidance was given to estimate a group wide PCR based on the existing requirements at
the individual insurer level.
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to one of twelve segments (please see the table in Annex F). In grouping into thesegments chosen for the BCR formula, supervisory judgement was applied to allocating
business to broadly homogeneous groups with specific consideration given to:Whether the same exposure measure is appropriate for different risks grouped
together

Similarity in terms of uncertainty relating to the size and timing of payments

Relative riskiness of earned and unearned business.

15. The appropriateness of the initial allocation of sub-segments was then validated against
the data provided as part of field testing. In particular, consideration was given to themateriality of the segments and sub-segments in the context of the G-SIIs with a view to
avoid allocating a specific capital charge to an immaterial segment or conversely
creating the need to derive a blended factor for two or more material sub-segments.
16. Although consideration was also given to data provided by all volunteers, greater weight
was given to the specific risk profile of G-SIIs given that the BCR is to be applied only to
G-SIIs. Although, on the whole, the final allocation of sub-segments to segments wasbroadly consistent with the initial allocation, some re-allocations were made as a result of
this validation exercise.
17. The IAIS has looked to derive segments for which the mix of business is broadly
consistent across the various G-SIIs.
Traditional Life Insurance Segmentation
18. When considering all G-SIIs in the aggregate, 90% of Current Estimates are just in threesub-segments, namely Savings without guarantees (approximately 25%), Annuities(approximately 10%) and Participating Products (approximately 50%). The proportion of
Current Estimates explained by these three sub-segments ranges from 70% to 95%
across the G-SIIs. For all field testing volunteers the allocation of reserves between thethree sub-segments does vary from the G-SII population, overall they continue toaccount for approximately 80% of Current Estimates in the aggregate. Two of thesethree dominant sub-segments, Annuities and Participating Products, have each been
allocated a separate factor under the proposed BCR. The third of the three dominant
sub-segments (Savings without guarantees) has been allocated to the Other Life
Segment and is by far the most important element of this segment. All segments are
dominated (80% of exposure measure or more) by a single sub-segment with theparticular sub-segment being similarly dominant across all G-SIIs. Current Estimates are
not an ideal exposure proxy for some lines of business – in particular protection
business.

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Exposure measures for traditional life business
19. The proxy measures for risk exposure for the four segments of the “Traditional Life
insurance” main category of activity are:

Participating, Annuities, Other life: Current Estimate as specified in the Market
Adjusted Valuation Approach, net of reinsurance recoverables, using the IAIS
specified discount curve. The reason for the choice of the Current Estimate is toimprove comparability across jurisdictions and to optimise transparency through theuse of a common and explicitly specified yield curve. The Current Estimate is net ofreinsurance recoverables to allow for the risk mitigating effect of outwards
reinsurance.

Protection: Net Amount at Risk (NAAR), equal to the sum insured minus the Current
Estimate, net of reinsurance recoverables, where the sum insured is the sum of all
maximum amounts that the insurance group would have to pay out on policies inforce within the Protection segment. The NAAR equals the maximum possible
payouts in excess of the Current Estimate and thus provides a measure of relativeriskiness; it is comparable across jurisdictions. The NAAR is considered an
appropriate proxy for the Protection – Life sub-segment, which is the most material
sub-segment; for other sub-segments the appropriateness of the proxy is underfurther consideration. The Current Estimate is not considered an adequate proxy for
the Protection segment because it is derived from cash-flows in which benefit andclaims payments are netted by premiums received, so that the Current Estimate
could be negative. An estimate of the present value excluding premiums received is
not available from the field testing data.

Traditional Non-Life segmentation
20. The pattern of segments that are dominated by a single sub-segment is also the case fornon-life insurance except for the Non-Life Other segment. For most G-SIIs, the mostmaterial sub-segment within this segment is Accident, Protection & Health business but
this is not universally the case. However, in the context of G-SIIs this is not a material
segment and segmenting to a more granular level would introduce a disproportionate
level of granularity to the BCR formula in return for very limited additional risk sensitivity.
21. For the G-SIIs, the property segment is dominated by property damage. Other property
sub-segments (non-proportional property, accident protection and health, motor damage
and catastrophe reinsurance) are all relatively insignificant for the G-SII population.
22. For the casualty segment, the other liability segment dominates with an immaterial
amount of non-proportional liability business.

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Exposure Measures for Non-Life Business23. For three of the four non-life segments, Current Estimates have been used as a proxymeasure for risk exposure. For the most part, Current Estimates provide a reasonableindication of business volumes as well as exposure to open claims which may
deteriorate materially as a result of adverse legal or legislative decisions. In particular,
Current Estimates offer an indication of accumulated exposure to possible legacy issues
which is a significant area of risk for traditional casualty business. Although Current
Estimates are less sensitive than premium to more recent changes in non-life businessvolumes, this is unlikely to be a significant concern in the case of G-SIIs.
24. For the Property segment, net written premium was identified as providing a better proxy
and it is against this measure, therefore, that the BCR Property factor is applied. There
are various reasons for taking this alternative approach:

For traditional property business, the most material area of uncertainty relates to thepossibility of future events impacting such business (e.g. major fire, terrorist attack orwindstorm). The best indicator of exposure to future events, which can reasonably28
be provided by companies, is net written premium as this should reflect bothbusiness volume and, if priced appropriately, its relative riskiness.

The volatility of property business, however, significantly depends on the size ofunderlying loss necessary for a G-SII to incur a claim and the specific perils insured.
For example, the performance of business underwritten purely to indemnify losses
resulting from named catastrophe perils or business which is only exposed to losses
in excess of a material underlying loss will be more unpredictable than primary
property insurance covering all perils. To reflect the varying level of uncertainty andensure that that the BCR incorporates an appropriate level of risk sensitivity while
respecting its basic structure, the property exposure measure recognises that nonproportional and catastrophe reinsurance will typically represent a proportionately
more significant level of exposure than property damage premium. The applied
definition of Premium Measure is;Premium Measure = Property Damage + [10 x (Non-Proportional + Cat Reinsurance)]28

Current Estimates are not an appropriate measure because:oThey provide only a weak indicator of those events which have not yet
occurredoThey do not necessarily offer a good indicator of risk relating to previous
events (e.g. where policy limits or retention levels have already beenreached)

Arguably, sums insured will provide an enhanced exposure measure but the integrity and comparability of suchdata is likely to be weaker than for net written premium.

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oThey would introduce unjustifiable levels of volatility in the BCR as the BCR
would increase materially following a major evento

There is a concern that Current Estimates would not be sufficiently sensitive
to rapidly adjusting exposures to property related risks resulting in asignificant lag between material changes in underlying exposures and thereflection of this in the BCR.

Non-Traditional Insurance Segmentation
25. There were four sub-segments of non-traditional life insurance – Variable annuities(separate information was obtained about the guarantees), GICS, Synthetic GICS andother non-traditional life insurance. The IAIS does not intend to significantly reduce thesegmentation on non-traditional business and therefore has only combined GICS and
Synthetic GICS with variable annuities remaining in its own segment. Other nontraditional life insurance business has been combined into a comprehensive other nontraditional insurance category along with other non-traditional non-life insurance andcommercial credit insurance and suretyship.
26. Mortgage insurance remains as a separate segment of non-traditional, non-life business.
Exposure Measures for Non-traditional Insurance Business
Variable Annuities – Notional Value
27. The notional value of variable annuities represents the present value of those payoutsthat are contractually guaranteed to each policyholder as of the valuation date. Before
hedging, the main risk of loss in this business relates to declining interest rates andequity market prices. Notional value is deterministic, independent of jurisdictional
accounting standards and always results in a positive exposure. The notional value
varies as the book of business ages, and captures many of key contract terms,
particularly the roll-up rates and the equity market ratchet features. Current estimate
liabilities were considered, but were not chosen as the exposure base because they may
be negative, vary by accounting regime, are typically calculated using stochastic
techniques, and are not well suited for factor-based capital requirements. “Separate
account value” was considered but rejected because it does not capture the value of theguarantees and, under a factor-based approach, would lead to declining capitalrequirements; even as Current Estimates increase.

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Mortgage Insurance – Risk in force
28. Mortgage insurance risk-in-force measures the insured outstanding principal of themortgage loans insured. The main risk in this business is credit loss due to housing
market and general household credit quality deterioration. Unexpected insured losses
are incurred when loan delinquencies and loss severities exceed expected levels.
Jurisdictional capital requirements typically prescribe maximum risk to capital ratio
thresholds for supervisory intervention. Since liabilities are typically not incurred until
loans become delinquent, the use of Current Estimate liabilities as an exposure base forfactor-based capital requirement would be backward-looking and a poor indicator of
unexpected loss.
GICs – Notional value
29. The notional value of a guaranteed investment contract (GIC) represents the present
value of principal and interest payments that are contractually guaranteed by the G-SII.
The main risk of loss relates to declining interest rates and credit losses in underlying
investments. For non-synthetic GICs, notional value are close to Current Estimates. For
synthetic products, Current Estimates are typically small under benign market conditions,but are sensitive to unrealized market and credit losses in the reference portfolios, so
Current Estimate is not a good exposure base to measure unexpected loss in a factorbased framework.
Other non-traditional – Current Estimate
30. Other non-traditional insurance includes credit products like surety, trade credit (except
for short term trade credit) and political risk insurance. Due to limited data availability,
Current Estimate has been used as the proxy exposure measure during initial fieldtesting. Notional value captures insured volumes outstanding and could be better suitedfor the BCR. The main risk of loss comes from non-performance by the reference
obligors in the contracts. Like mortgage insurance, a loss is not typically incurred until
there is a credit event. The feasibility of using Notional value will be investigated during
further field testing.
Asset segmentation
31. With respect to risk associated with assets, the BCR has been calibrated to the threesegments of Credit – investment grade, Credit – non investment grade and Equity, realestate & non-credit investment assets. The process for the selection and validation of theasset classes is broadly consistent with that applied when selecting the appropriate
insurance segments. As expected, the investment grade asset class (including
policyholder loans) comprises a broadly consistent blend of corporate and government
bonds. With regards non-investment grade assets, the segment is largely explained by
the sub-segments of Corporate Bonds and Mortgage loans with some further exposure
to corporate bonds. In the case of equity, real estate & non-credit investment assets, thesegment is largely attributable to a combination of traditional equities and real estate withthe balance explained by other invested assets.
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Exposure Measures for Assets
32. The proxy measure for risk exposure for the three segments Credit – investment grade,
Credit – non-investment grade, and Equity, real estate & non-credit investment assets isfair value. One reason for the choice of fair value is comparability across jurisdictions, incontrast to GAAP values; another reason is that the fair value is defined to optimisetransparency through the maximum use of relevant public data.
33. Assets supporting liabilities where the asset risks have been fully passed through to thepolicyholder (e.g. unit linked) are not included in the asset category. For some life
insurance products, such as those maintained in separate accounts without guarantees,
the assets are specifically identifiable. For other life insurance products, with residual
asset risk exposure, the IAIS will provide technical guidance for confidential reporting toensure consistent application of this exclusion of assets.
Asset-Liability Matching (ALM)
34. While Asset-Liability Matching (ALM) is a major risk category, particularly for life
insurance, practical difficulties within the given timeframe for the development of the
BCR posed particular challenges for addressing this risk category. Following analysis offield testing data, the IAIS determined that explicitly including such a factor in the BCR
formula is not appropriate given the simple design of the formula. As a straightforward
approach, the calibration level of the BCR implicitly accounts for the absence of an ALM
factor.29
Diversification
35. The treatment of diversification in the BCR, especially in the context of composite G-SIIs
where their life and non-life business may be of similar sizes, has been explored. While itwould be appropriate to reflect the effect of diversification between major risk drivers in
the ICS, the technical complexity of doing so explicitly in the BCR formula is inconsistent
with its simple design.30 As a straightforward approach, the calibration level of the BCR
implicitly accounts for some degree of diversification.31

29

The explicit treatment of ALM will be further explored in the development of the ICS.

30

The explicit treatment of diversification will be further explored in the development of the ICS.

31

The factors that have been listed in section 3.3 have been determined on a post-diversified basis. This gives
an implicit allowance for the diversification benefit that would be expected for the G-SII group of companies. Dueto the simplistic nature of the BCR, the implicit diversification allowance within the BCR does not allow for thedifferentiation between the G-SIIs where they have different levels of diversification.

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Annex F – Mapping table: BCR category to field testing data collection
BCR category

BCR segment

Data collection

Traditional Life
Protection

Protection - Life

Participating products

Participating products

Annuities

Annuities

Other life

Protection - healthProtection - other
Savings without guarantees or living benefits(including VA without guarantees)
Other traditional

Traditional Non-life
Property

Property Damage
Non-proportional property, Accident, protection
and health and motor damage (including
property catastrophe)
Catastrophe Reinsurance

Motor

Motor

Casualty

Other liability
Non-proportional liability

Other non-life

Accident, protection and healthMarine, Aviation and Transport (MAT)
Non-proportional MAT
Other traditional - short-tailOther traditional - medium-tailOther traditional - long-tailVariable annuities

value of guarantees

Mortgage insurance

Mortgage insurance

GICS & Synthetic GICS

Guaranteed Investment Contracts (GICs)
Synthetic GICs

Other non-traditional

Other non-traditional

Non-Traditional

Commercial credit insurance including
Suretyship
Other non-traditional non-life insurance
AssetsCredit - investment grade/ non-investment grade

Investment income receivable / accrued
Fixed Interest Government Bonds
Fixed interest Corporate Bonds
Fixed Interest Municipal Bonds
Variable Interest Government Bonds

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Variable interest Corporate Bonds
Variable Interest Municipal Bonds
Convertible notes
Residential Mortgage Loans
Non-residential Mortgage Loans
Other (non-mortgage) Loans
Loans to policyholders32
Residential Mortgage Backed Securities
Commercial Mortgage Backed Securities
Insurance Linked Securities
Other structured securities
Reinsurance recoverables
Other reinsurance assets
Equity, real estate & noncredit investment assets

32

Equities
Hedge Funds
Private equity
Real estate (for investment purposes & own
use)
Infrastructure
Other investment assets

Loans to policyholders will be treated as ‘Credit – investment grade’

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