Public

Global Systemically Important Insurers:
Updated Assessment Methodology

16 June 2016

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About the IAISThe International Association of Insurance Supervisors (IAIS) is a voluntary membershiporganization of insurance supervisors and regulators from more than 200 jurisdictions. The
mission of the IAIS is to promote effective and globally consistent supervision of theinsurance 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.
The IAIS coordinates its work with other international financial policymakers and associationsof supervisors or regulators, and assists in shaping financial systems globally. In particular,
the IAIS is a member of the Financial Stability Board (FSB), member of the Standards
Advisory Council of the International Accounting Standards Board (IASB), and partner in the
Access to Insurance Initiative (A2ii). In recognition of its collective expertise, the IAIS also isroutinely 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 regulation and 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.iaisbeb.org© International Association of Insurance Supervisors (IAIS), 2016.
All rights reserved. Brief excerpts may be reproduced or translated provided the source isstated.

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Preface
In 2010, the FSB asked the IAIS to develop a process to identify those globally active
insurance-dominated financial conglomerates whose distress or disorderly failure, because of
their size, complexity and interconnectedness would cause significant disruption to the global
financial system and economic activity. After developing and publishing in 2013 its first
methodology (2013 Methodology) to assess potential globally systemically important
insurers, the IAIS employed the 2013 Methodology for G-SII identifications in 2013, 2014,
and 2015.
As part of its scheduled three year review, in November 2015, the IAIS released a public
consultation document that outlined proposed revisions to the 2013 Methodology. The
revised methodology described herein (2016 Methodology) follows consideration of
stakeholder comments received in reply to the public consultation document. The 2016
Methodology will be employed by the IAIS beginning in 2016.
The IAIS is committed to transparent engagement with stakeholders, as evidenced by morethan 140 hours of stakeholder engagement in 2015 (up from approximately 15 in 2014). To
this end, the 2016 Methodology increases transparency of process and results toparticipating insurers and to the public.
The IAIS has also put in place appropriate frameworks to protect confidential data provided
by insurers as part of the assessment process.

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Glossary of abbreviations
BCBS
BIS
CDS
FSB
G-SIBsG-SIFIs
G-SIIs
G20
HLA
IAIGs
IAIS
ICS
ICPs
NTNI
SIFIs

PublicBasel Committee on Banking Supervision (also Basel Committee)
Bank for International Settlements
Credit Default Swap
Financial Stability Board
Global Systemically Important Banks
Global Systemically Important Financial Institutions
Global Systemically Important Insurers
Group of Twenty Countries
Higher Loss Absorbency
Internationally Active Insurance Groups
International Association of Insurance Supervisors
Insurance Capital Standard
Insurance Core Principles
Non-traditional Non-insurance Activities
Systemically Important Financial Institutions

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Contents
Preface ................................................................................................................................ 3
Glossary of abbreviations .................................................................................................... 4
I.

Introduction ................................................................................................................ 6

II.

The Structure of the 2016 Methodology ..................................................................... 8

III.

Indicator Revisions ..................................................................................................... 8

IV.

Phases of Assessment Process ............................................................................... 12

V.

Transparency ........................................................................................................... 23

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I.

Introduction

1. The International Association of Insurance Supervisors (IAIS) participates in a global
initiative, along with other standard setters, central banks and financial sector
supervisors, and under the purview of the Financial Stability Board (FSB) and G20, to
identify global systemically important financial institutions (G-SIFIs). 1 The IAIS’ analysis
involves the identification of insurers 2 whose distress or disorderly failure would
potentially cause significant disruption to the global financial system and economic
activity, i.e. global systemically important insurers (G-SIIs). The IAIS does not measure
an insurer’s vulnerability when assessing the potential impact upon distress or failure of
an insurer. Additionally, the analysis in the G-SII identification process does not consider
the quality of the resolution or policy framework within a jurisdiction. To this end, in 2013
the IAIS developed an initial assessment methodology (2013 Methodology).
2. As stated in the 2013 Methodology, the assessment methodology is to be reviewed every
three years in order to capture improvements noted by IAIS Members, developments in
the insurance sector, changes in insurers’ activities or products, growth in the global
insurance markets, and improvements in methods and approaches for measuringsystemic importance in the insurance sector and the broader financial sector. The next
revisions to the G-SII assessment methodology will begin in 2018 and be effective in
2019.
3. On 6 November 2014, the FSB reported that, “by November 2015, the IAIS will further
develop the G-SII assessment methodology as needed to ensure, among other things,
that it appropriately addresses all types of insurance and reinsurance, and other financial
activities of global insurers.” 3 On November 25, the IAIS released two papers: (1) Global
Systemically Important Insurers: Proposed Updated Assessment Methodology and (2)Non-traditional Non-insurance Activities and Products for a 60 day consultation period. 4
4. As an industry, insurers are heterogeneous in terms of size, structure, lines of business,
global activity, risk exposures, and data reporting. Recognising this heterogeneity acrossthe global financial system, the 2016 Methodology includes a structured use ofquantitative and qualitative components, and both are combined into an overall andcomprehensive assessment of any insurer prior to that insurer being identified as a G-SII.
The results of the 2016 Methodology are driven by factual analyses, a comprehensive
assessment of the individual insurer, and an exchange of information with theProspective G-SII.

1 G-SIFIs

are defined by the FSB as “institutions of such size, market importance, and global
interconnectedness that their distress or failure would cause significant dislocation in the global
financial system and adverse economic consequences across a range of countries.” Global
systemically important insurers (G-SIIs) are one class of G-SIFIs. See the FSB SIFI Framework,
2010 (http://www.financialstabilityboard.org/publications/r_101111a.htm).
2 Unless otherwise noted, for the purpose of this document the term “insurers” may include bothprimary insurers and reinsurers as well as other firms with insurance operations.
3 Financial Stability Board, 2014 updated of list of global systemically important insurers (G-SIIs),
November 6, 2014, (http://www.financialstabilityboard.org/wp-content/uploads/r_141106a.pdf).
4 See Non-traditional Non-insurance Activities and Products, 25 November 2015.
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5. The 2016 Methodology outlines a five-phase approach to the G-SII assessment processthat includes fact-based qualitative and quantitative elements. The IAIS has modified
certain indicators used in the 2013 Methodology to address issues related to indicator
responsiveness, connection with systemic risk, and data quality, including reliability(across both insurers and jurisdictions).
6. The 2016 Methodology uses absolute reference values for derivatives trading (CDS or
similar derivatives instrument protection sold) financial guarantees, and reinsurance
indicators. Second, the IAIS moved the consideration of data relating to the large
exposures and intra-group commitments from the quantitative assessment in Phase II to
the Phase III analysis. Third, the IAIS has not used derivatives trading (excluding hedging
and replication) in economic terms as an indicator in the 2013 Methodology because ofdata reliability concerns. Recognising its high degree of potential systemic relevance, theIAIS continues to explore how to assess an insurer’s speculative derivatives trading.
7. The 2016 Methodology may result in the identification of G-SIIs, which are subject topolicy measures for G-SIIs (e.g. enhanced supervision, effective resolution, and higher
loss absorbency (HLA), as adopted by relevant authorities. 5 Insurers that are
Internationally Active Insurance Groups (IAIGs) will be subject to the IAIS Common
Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), 6
and insurers that are neither G-SIIs nor IAIGs are subject to supervision consistent with
the IAIS Insurance Core Principles (ICPs).
8. The ICPs apply to insurance supervision in all jurisdictions regardless of the level ofdevelopment or sophistication of the insurance markets or services being supervised.
Supervisory measures should be appropriate to attain the supervisory objectives of thejurisdiction and should not exceed that which is necessary to achieve those objectives.
Supervisors need to tailor certain supervisory requirements and actions in accordancewith the nature, scale, complexity and risk profile of the insurer. Supervisors have theflexibility to tailor supervisory requirements and actions to be commensurate with therisks posed by insurers to consumers, the insurance sector or the financial system.
9. Insurers and IAIGs in the Insurer Pool (the insurers participating in the annual datacollection exercise are collectively referred to herein as the Insurer Pool) that are not GSIIs will be subject to the ICPs and ComFrame, and G-SIIs will be subject to ICPs,
ComFrame, and G-SII Policy Measures. Separately, and through the IAIS, supervisors
are expected to assess the proportional application of elements of the ICPs, ComFrame,
and the G-SII Policy Measures on enhanced supervision and effective resolution to IAIGs
and insurers in the Insurer Pool (including any insurers in the Insurer Pool identified as G5 See Globally Systemically Important Insurers:

Policy Measures (IAIS July 2013).

6 Insurers that satisfy the criteria to be an IAIG but are not identified as G-SIIs, will not be subject to the

G-SII enhanced supervisory measures but will be subject to ComFrame, as adopted by relevant
authorities. The criteria to be an IAIG are:a.
International activity: premiums written in not less than three jurisdictions andpercentage of gross written premiums collected outside the home jurisdiction is not less than
10%; and,b.
Based on a rolling three-year average, total assets of at least $50 billion or grosswritten premiums of not less than $10 billion.

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SIIs) in order to manage the potential transition of insurers from G-SII to non-G-SII status
and vice versa. Without prejudging the outcome of this assessment, this will not be areconsideration of the substance of the policy measures, and is not intended to create a
new subgroup of non-G-SII insurers within the existing IAIS framework. If necessary, theIAIS will publicly consult on differences in the intensity and application of supervisory
measures that are dependent upon the insurer’s nature, size, scale, complexity, andinterconnectedness.

II.

The Structure of the 2016 Methodology

10. Built on the 2013 Methodology, the 2016 Methodology integrates a structured use ofquantitative and qualitative considerations. The structure of the 2016 Methodology is
discussed in Section IV.
11. The 2016 Methodology adopts a five-phase approach. Phases I and II (see discussion
below) incorporate the quantitative component of the 2016 Methodology. Phases III andIV (see discussion below) comprise qualitative and quantitative elements of the 2016
Methodology, including engagement with Prospective G-SIIs (as defined in paragraph36). Phase V combines Phases I through IV to produce an overall assessment that
concludes with the IAIS recommendation to the FSB.

III.

Indicator Revisions
Rationale for Use of Absolute Reference Values
12. The 2016 Methodology uses absolute reference values for three indicators to better
assess systemic importance of the Insurer Pool within the broader insurance sector or
financial system. Using absolute reference values means that these indicators are notcalculated solely as the relative importance of an insurer within the Insurer Pool. For
example, under the 2013 Methodology, each insurer’s score for a particular indicator was
calculated by dividing the individual insurer amount by the aggregate amount summed
across all insurers in the sample. 7 Absolute reference values are derived from financial
market totals and create a scaling factor which is multiplied by the weight of each of thethree indicators to better measure systemic importance.
13. The use of absolute reference values has been motivated by several considerations.
Absolute reference values recognise changes in the systemic risk of the sample insurers
over time, a sensitivity that is lost when scores are entirely relative and is important forthese three indicators. For example, the underlying markets for both the derivatives
trading (CDS or similar derivatives instrument protection sold) and financial guarantee
indicators have seen large decreases in volume since the financial crisis. The 2013
Methodology did not adequately capture this possibility. Without adjustment these
indicators could result in a distorted score for that indicator for an insurer with a constantor declining amount of activity.

7 See Global Systemically Important Insurers: Initial Assessment Methodology, 18 July 2013.

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14. The use of absolute reference values also make the 2016 Methodology more responsive
to changes in the insurance industry’s systemic profile. For example, if insurers resumed
writing credit default swaps at levels undertaken during the global financial crisis of 200708, scores would now increase accordingly. The use of absolute reference values also
helps adjust for sample bias. Although the IAIS annually requests data fromapproximately fifty insurers as part of the 2016 Methodology, insurers in the datacollection exercise may not be representative of certain aspects of the broader global
financial system.
15. The absolute reference values for these three indicators are based on the following:a. Financial Guarantees: This absolute reference value is the ratio of the current
par value of structured finance bonds insured relative to the average annual
total from 2005 – 2007.
b. Derivatives trading (CDS or similar derivatives instrument protection sold):This absolute reference value is the ratio of the total current global CDS
market to the total global CDS market in 2007. Further analysis will include a
Phase III consideration of developments of exposure in the insurance sector
and a cross-sectoral evaluation of the growth of the credit default swaps soldin the insurance sector as compared to the banking sector.
c. Reinsurance: This absolute reference value equals the net premiums for thethird-party reinsurance premiums of those reinsurers who complete thereinsurance supplemental assessment (see paragraph 67) divided by global
third-party reinsurance sector net premium.
16. At the next scheduled three-year review, the Methodology may move toward using moreabsolute reference values, where appropriate, to assure that the indicators adequately
capture changes in the industry’s systemic footprint and the potential threat to global
financial stability posed by insurers as compared to other financial firms.
Financial Guarantees Indicator
17. The financial guarantees indicator measures the par value outstanding of structured
finance bonds insured. 8 The IAIS has determined that these products are or werepredominately offered by U.S.-based insurers and were systemically important at the timeof the financial crisis. The IAIS has also determined that the guarantee on structured
finance transactions, predominately offered by some U.S.-based insurers, is currently in
run-off in the United States. For this reason, and in order to best monitor annual
developments in the structured finance guarantee market, the IAIS will now use an
absolute reference value that accounts for market developments. This absolute reference
value is the ratio of the current par value of structured finance bonds insured relative tothe average annual total from 2005 – 2007.
18. The IAIS will continue to monitor developments in global financial guarantee activity(including public finance guarantee) so that annual growth can be tracked for global
systemic importance.

8 See Global Systemically Important Insurers: Initial Assessment Methodology, 18 July 2013.

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Derivatives Trading (CDS or similar derivatives instrument protection sold) Indicator
19. The derivatives trading (CDS or similar derivatives instrument protection sold) indicator isintended to capture the scale of CDS protection sold by an insurer which thereby
connects that insurer with other parts of the financial system. 9 The IAIS uses an absolutereference value for this indicator that accounts for market developments and the currently
reduced size of the CDS market, thereby reducing the distorted outcomes that resulted
from a relative ranking. The level of CDS activity throughout the financial system in 2007
was observed to have systemic consequences, and this absolute reference value is theratio of the total current global CDS market to the total global CDS market in 2007.
Reinsurance Indicator
20. The reinsurance indicator in the interconnectedness category uses reinsurance technicalprovisions as a proxy for counterparty exposure in the insurance sector from reinsurance
transactions. 10 The IAIS uses an absolute reference value for this indicator because theapproximately fifty insurers in the IAIS annual data collection may not be representativeof the reinsurance market. In addition, a reinsurer’s actual market share in the global
reinsurance market may change over time. Further, given that both the IAIS andsupervisory authorities encourage diversification of reinsurance capital, this indicator ispremised upon relevance within the total insurance and reinsurance sector rather than
within the Insurer Pool. In particular, this absolute reference value equals the net
premiums for third-party reinsurance activity of those reinsurers who complete thereinsurance supplemental assessment divided by global third-party reinsurance sector
net premium. This absolute reference value better measures the global systemic
importance of reinsurance activities engaged in by the reinsurers in the Insurer Pool.
Former Phase II Indicators moved to Phase III
21. The IAIS moved consideration of an insurer’s large exposures, intra-group commitments,
and derivatives trading (excluding hedging and replication) from Phase II to the Phase III
analysis.
Revisions and Improvements to other Indicators in the 2016 Methodology
Derivatives Indicator (Interconnectedness Category)
22. The derivatives indicator measures the degree of interconnectedness with the financial
system through derivatives transactions. The data input used for this indicator in the 2013
Methodology was based on gross notional value. This measurement was chosenbecause gross notional value provides a measure of the potential disruption from theunwinding of a derivatives book in the event of an insurer’s distress or failure andbecause it is reported consistently across jurisdictions. In addition to avoid double
counting, the IAIS has determined to remove from the derivatives indicator in theinterconnectedness category the bifurcated embedded derivatives associated with
9Id.

10 Id.

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products that are captured in the minimum guarantee indicator. For 2016, the Phase II
indicator remains based on the gross notional value. The IAIS is now collecting data on
the net fair value and potential future exposure from derivatives transactions and willconsider this data in Phase III in 2016. This data provides additional insight into
counterparty exposure from derivative transactions, including netting arrangements andthe relative risk of different types of derivatives. Beginning in 2017, the IAIS will evaluate
whether, and, if so, how to incorporate into the Phase II derivatives indicator the net fairvalue and potential future exposure.
Liability Liquidity Indicator
23. In a standardized framework, economic penalties and time restraints are important
contractual aspects that impact the propensity of policyholders to surrender in stressed
conditions. The lower the penalty and the shorter the time restraint, the more likely it isthat policyholders may surrender, thus putting the insurer under a considerable liquidity
strain under distress. To reflect the difference in severity, a gradated approach is applied.
The combination of time restraints and economic penalties would determine the weightthat liabilities receive under the liability liquidity indicator, according to the following table.
Table 1.

Economic
Penalties

None

Delay in accessNone(< 1 week)
100%

Low
(< 3 months)
50%

High
(> 3 months)
2.5%

Low (< 20%)

50%

25%

0%

High (> 20%)

2.5%

0%

0%

Where:••

Delays in access are based on the average time between the request by apolicyholder and the settlement under the normal course of business.
Economic penalties include all contractual monetary penalties that insurers can
impose on policyholders that surrender early.

Minimum Guarantee on Variable Products Indicator
24. The 2013 Methodology included derivatives used to hedge minimum guarantees on variable
products in its assessment of the derivatives indicator but did not recognize these derivatives in
the assessment of the minimum guarantees on variable products indicator. This implies adouble-counting of the use of derivatives for the purpose of hedging, such that insurers which
hedge their risks are penalized compared with insurers which do not hedge their risks. In
addition, derivatives embedded in products with minimum guarantees were included both in theminimum guarantees on variable products indicator and in the derivatives indicator. Under the2016 framework for determining the products that will be included in the Phase II
indicator, the IAIS has determined to address this double-counting in the assessment of
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risks of derivatives and minimum guarantees on variable products. The 2016
Methodology removes the double counting of hedged exposures by deducting the portionof the derivatives indicator score attributable to hedges of minimum guarantees from theminimum guarantees indicator. 11 While derivatives do not eliminate the systemic riskcreated by these exposures for minimum guarantees products, it is not necessary to
double count the exposure.
Revised Phase II Indicators and Weights
25. In the 2016 Methodology, the IAIS has reclassified indicators within Phase II according to
the systemic risk transmission channel with which they are associated. Indicators thatwere once included within the Non-traditional Non-Insurance (NTNI) category are now
distributed between the Interconnectedness category and a new Asset Liquidation
category. Additionally, some indicators previously included within the Interconnectedness
category have been moved to the Asset Liquidation category and two sub-categories(counterparty exposure and macroeconomic exposure) have been established within theInterconnectedness category.
26. The IAIS moved consideration of an insurer’s large exposures, intra-group commitments,
and derivatives trading (excluding hedging and replication) from the indicator-based
component in Phase II and to the Phase III analysis. With the consideration of three data
points (derivative trading (excluding hedging and replication), intra-group commitments
and large exposures) moved to Phase III, the weights for the remaining indicators
previously in the Interconnectedness and NTNI categories are increased proportionally.
See discussion of Phase III below.
27. In addition, for the indicators for which absolute reference values have been introduced(reinsurance, financial guarantee and derivatives), the absolute reference values adjust
the weights of the indicators. The adjusted weights do not, in general, add to 1.00. For
these indicators, this approach allows the IAIS to monitor growth or decline in activities
measured by the indicators in a manner that a relative score will not.

IV.

Phases of Assessment Process

28. The 2016 Methodology includes a five-phase approach.
Phase I: Annual Data Collection Phase
29. The IAIS collects data from insurers that meet at least one of the following criteria,
subject to the provisions in paragraph 31:• total assets of more than US$ 60 billion and a ratio of premiums from jurisdictions
outside the home jurisdiction to total premiums of 5% or more; or• total assets of more than US$ 200 billion and a ratio of premiums fromjurisdictions outside the home jurisdiction to total premiums greater than 0%.

11

Amended Minimum Guarantees on Variable Products indicator:

𝑀𝑀𝑀𝑀𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓

𝑀𝑀𝑀𝑀𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠−

𝐷𝐷𝑀𝑀𝑀𝑀,𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝐷𝐷𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠(Where ‘D’ and ‘MG’ denote the exposuresused in the indicators for the firm, the sample or the portion covering hedged minimum guarantees).

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30. The insurers generally included are the 50 largest insurers, although the IAIS may
choose to include more or less than 50 insurers.
31. In exceptional circumstances that are analytically supported, the IAIS and relevant
authorities may annually determine to collect data from any insurer that may allow a more
representative Insurer Pool for systemic risk analysis. Subject to analytically defensible
grounds, the IAIS and relevant authorities may choose to not collect data from an insurerthat otherwise meets the criteria.
32. The IAIS intends annually to review and, if necessary, revise the data call instructions
and template to collect better data for Phases II and III. Typically by early April, the IAIS
issues the data call instructions and template through relevant authorities to insurers in
the Insurer Pool.
Phase II A: Quality Control and Scoring Phase
33. During Phase II, the insurers in the Insurer Pool typically submit data to the relevant
authorities by mid-May each year. The relevant authorities then conduct a generalaccuracy and reasonableness assessment of data received from insurers in theirrespective jurisdictions. By mid-June the IAIS validates the completeness and accuracyof data received from insurers, to the extent reasonably necessary and possible. Also, if
necessary, the IAIS will communicate with relevant authorities to validate data.
34. Following the receipt and validation of data, for each insurer in the Insurer Pool, the IAIS
will use the data to calculate the scores for each of the 17 indicators, which are multipliedby the respective weights and, where applicable, absolute reference values and thensummed to an overall score for each insurer. The quantitative assessment in Phase IIprovides an initial quantitative ranking of the relative systemic importance of potential GSIIs within the 2016 Methodology.

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Table 2. Phase II Indicators and Weights
Category

Subcategory

Size
Global activity
Counterparty
exposureInterconnectedness
Macroeconomic
exposure

Asset liquidation

Substitutability

Indicator

WeightTotal Assets
Total Revenues
Revenues derived outside of home country
Number of Countries
Intra-financial assets
Intra-financial liabilities
Reinsurance
Derivatives
Derivatives Trading (CDS or similar
derivatives instrument protection sold)
Financial guarantees
Minimum guarantees on variable products
Non-policy holder liabilities andnoninsurance revenues
Short term funding
Level 3 assets
Turnover
Liability liquidity
Premiums for specific business lines

2.5%
2.5%
2.5%
2.5%
6.7%
6.7%
6.7%*
6.7%
7.5%*
7.5%*
7.5%
7.5%
7.5%
6.7%
6.7%
7.5%
5%

*Denotes the application of an absolute reference value

Phase II. B: Determination of Quantitative Threshold
35. Following Phase II.A, the IAIS establishes a quantitative threshold that preliminarily
divides the Insurer Pool into two groups. The two groups are:•Group 1: This group contains insurers scoring above the quantitative threshold.
This group will be analysed further in Phase III.

•

Group 2: This group contains insurers scoring below the quantitative threshold.
This group will not be subject to further evaluation in Phases III unless added bydiscretion of the IAIS and the relevant authorities on analytically defensible
grounds.

36. Insurers in Group 1 and those added to Phase III by discretion of the IAIS and therelevant authorities from Group 2 will be subject to further analysis in Phases III to V
(Prospective G-SIIs).
37. Following the application of data to the indicators in Phase II, the IAIS will establish thequantitative threshold by consistently applying a process and method year-over-year.
The IAIS will monitor the annual consistency of the quantitative threshold by identifying

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the average score of the insurers included in the data collection exercise and calculatinga certain level of standard deviation from the average score.
38. In Phase II, the IAIS will establish the quantitative threshold in a manner that is consistent
with the following statistical and analytical approaches. These approaches are used toverify the reasonableness of the output of each individual approach. These approaches
are:
•
•
•

•

Visual cliff, i.e. evaluation of whether the Phase II scores indicate a meaningful
difference between one or more potential G-SIIs and the other ranked insurers.
Cluster analysis, i.e. evaluation of whether the scores demonstrate that one ormore potential G-SIIs generate scores within a range.
Cross-sectoral analysis, i.e. where possible, the IAIS will evaluate the relative
importance of potential G-SIIs in the broader financial system and in comparison
to potential systemically important firms in other sectors. This analysis may
include consideration of systemic risk metrics upon which the IAIS agrees are
generally informative.
Trend comparisons, including of the aggregate totals for each Phase II indicator,
to assess whether the systemic importance of the potential G-SIIs has increased
or decreased over time.

39. An insurer’s score or ranking following Phase II does not of itself determine or result in GSII identification. Rather, the five phases of the 2016 Methodology produce a
recommendation from the IAIS to the FSB on a recommended G-SII list.
Phase III: Discovery Phase
40. For Prospective G-SIIs, Phases III, IV, and V enable the IAIS to consider additional
information and conduct additional analyses as described below. Through Phase III,adjustments to the Phase II score will be made only if analysis and further data reveal
errors in the data submitted by insurers or in the IAIS calculation of the Phase II score.
41. The 2016 Methodology is based on quantitative outputs that are complemented by anassessment phase (Phase III) in which additional information, including qualitative andquantitative considerations, will be taken into account. Phase III will assess theheterogeneity of structures, activities, products, exposures and global activities within theinsurance industry, and differences in data quality reported across insurers and acrossjurisdictions.
42. During Phase III, the IAIS and the relevant authorities will gather and analyse additional
quantitative or qualitative information that is not captured in Phase II indicators. For these
purposes the IAIS may request additional information from the insurer. The level andextent of analysis conducted in Phase III for Prospective G-SIIs will be determined by therelevant authorities and the IAIS.

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43. Phase III allows for identification and analysis of incomplete or inaccurate outcomes from
Phase II, if necessary. The IAIS removed intra-group commitments, large exposures, andderivatives trading (excluding hedging and replication) in economic terms from thequantitative assessment in Phase II and considers these data elements in Phase III.
44. The IAIS strives to make the Phase II indicators as accurate a representation of thesystemic risk from individual insurers as possible and anticipates that further
improvements to the Phase II indicators will increase its accuracy and importance overtime. As part of this and beginning in 2017, the IAIS will evaluate whether, and, if so, how
to incorporate data points from Phase III into the 2016 Methodology’s Phase II indicators.
Data on Large Exposures
45. The data on large exposures that were previously collected through the 2013
Methodology also may reflect incoming risks that affect the probability that an insurer will
be in financial distress, rather than the systemic impact upon failure or material distressof that insurer. However, an insurer’s large exposures could provide relevant information
on an insurer’s interconnectedness with external counterparties. If an insurer’s assets arehighly concentrated in one or a small number of counterparties, the insurer may besensitive to the distress of those particular counterparties and could be more likely tocontribute to system-wide contagion. Moreover, in the event of the insurer’s own distress,
it may potentially damage the functioning of the market(s) in the liabilities of thosecounterparties and may thereby further distribute the insurer’s stress to the financial
system. Therefore, this data will be considered during Phase III of the Methodology.
Data on Intra-group Commitments
46. The intra-group commitments of an insurer may affect intra-group contagion and whether
an insurer may be in financial distress. Therefore, depending upon the nature of thegroup, the intra-group commitments of an insurer may have systemic risk implications
The IAIS moved the intra-group commitments indicator from Phase II of the Methodology
because data inconsistencies across firms and across borders resulted in potentially
inaccurate or incomplete calculations of the indicator across the sample insurers.
Therefore, information on intra-group commitments will be considered during Phase III of
the 2016 Methodology.
Data on derivatives trading (excluding hedging and replication) in economic terms
47. The 2013 Methodology included both a derivatives trading (CDS or similar derivatives
instrument protection sold) indicator and a derivatives trading (excluding hedging andreplication) in economic terms indicator in the category formerly known as NTNI. The
derivatives trading (excluding hedging and replication) in economic terms indicator was
intended to indicate the degree of speculative derivatives trading by insurers, which has ahigh degree of potential systemic relevance. However, the IAIS has not used thisindicator in prior designation exercises because of concerns regarding data
responsiveness and reliability across insurers and across jurisdictions. Therefore, theIAIS removed this indicator from Phase II of the Methodology. However, recognising its
high degree of potential systemic relevance, the IAIS continues to explore how to assess
an insurer’s speculative derivatives trading.

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Additional Phase III Analysis
48. The following analysis and additional information considered in Phase III allows for amore nuanced assessment of each insurer subject to this phase, including of its Phase II
indicators, in order to take into account any idiosyncratic elements of the insurer’sbusiness model:
•
•

•
•
•

•
•

Improved understanding of the data that constitute the Phase II indicators.
Facts or circumstances relevant to global financial stability that cannot be easily
discerned from the Phase I data collection or Phase II indicators. This also
includes any material changes in the insurer’s circumstances (such as major
acquisitions or divestitures) since the compilation of the data on which Phases I
and II are based, and which would have a significant impact on the insurer’s
potential systemic relevance.
Increased understanding of the nature and extent of risks associated with noninsurance activities.
Identification of additional factors that may increase or decrease the extent towhich the insurer’s distress or disorderly failure would cause significant disruption
to the global financial system and economic activity.
Characteristics of the insurer’s business model, composition and proportion of thegroup’s financial and non-financial activities to assess, among other things, theinterconnections between the parts of the insurance group (e.g. theinterconnections between the insurance group’s various financial activities andnon-financial activities).
Growth or decline in the Phase II indicators for which absolute reference values
have been established (such as the structured finance guarantee market used in
the financial guarantees indicator).
The assessment also should examine a primary insurer’s or a reinsurer’s
exposures to potential large catastrophes.

49. Phase III will include cross-sectoral assessments, including analysis of (1) developments
in credit default swaps (CDS) exposure in the insurance sector, including the growth or
decline in the total amount of CDS sold outside of the insurance sector; (2) comparison of
the aggregate indicators on which relative rankings are based to the broader financial
system; (3) risks to financial stability identified in the financial stability work in otherfinancial sectors that may be interconnected with the insurance sector; and (4) any othermeasure of global systemic impact that the IAIS determines to be appropriate.
Data on an insurer’s interconnections with other financial counterparties
50. Phase III allows the IAIS to conduct a further analysis of the nature and extent of theinsurer’s interconnections with other financial counterparties. To further this objective, theIAIS is collecting information on an insurer’s deposit-type institutional business (e.g.
contracts marketed towards financial counterparties that do not incorporate significant
insurance risk) because these activities may increase interconnections between theinsurer and other financial institutions. This data and analysis allows the IAIS to further
evaluate the impact of an insurer’s failure or material distress on the global financial
system by further analysing the extent to which large financial institutions have significant
exposures to the insurer.
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Data on trading securities
51. The IAIS is collecting information on securities trading activities in order to enhance thequality of data considered in the turnover indicator. This data and analysis will help
produce a more accurate interpretation of the turnover indicator by measuring the debt
and equity securities that are bought and held by the insurer principally for the purpose ofsales in the near term.
Data on debt and debt-like liabilities with provisions that could accelerate payment
52. The IAIS is collecting information on the amount of an insurer’s debt and debt-likeliabilities that could be accelerated. This data and analysis will provide information on theextent to which an insurer has liabilities that could be accelerated if the insurer were in
distress (for example, long term borrowing could have triggers which give it short-termfeatures).
Data on derivatives (net fair value and potential future exposure)
53. In addition to gross notional value, the IAIS is collecting data on an insurer’s net fair value
and potential future exposure from derivatives transactions and will consider this data in
Phase III in 2016. This data and analysis provides additional insight into counterparty
exposure from derivative transactions and how an insurer may be affected by changes inmarket circumstances, including by evaluating potential expected future exposures tocounterparties, netting arrangements, and the relative risk of different types ofderivatives.
Data on insurer’s entire asset portfolio and its entire liability portfolio
54. The IAIS is collecting information in Phase I on the average duration of an insurer’s entire
asset portfolio and its entire liability portfolio. This data will provide the IAIS withinformation regarding the duration gap between an insurer’s assets and liabilities. One
example of a mitigating factor is a small or no duration gap (perfect matching of liabilities
in practice). One example of an exacerbating factor is a substantial duration gap(assessment needs to be made that put both asset and liability duration into perspective).
For insurers with material business with features such as future discretionary benefits,particular ratios, which use liability cash flows that better reflect the duration of theliabilities, might be calculated by supervisors after additional requests for information fromthe insurer.
Phase III Considerations for Minimum Guarantee on Variable Products Indicatorand Liability Liquidity Indicator
55. The following factors will be considered in Phase III. These additional factors provide amore accurate measure of the indicators of minimum guarantees on variable products
and liability liquidity. Each aims to provide additional insights for the assessment ofsystemic relevance. Further rationale for each of these additional factors is provided in
the IAIS’ paper Systemic Risk from Insurance Contract Features.

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Minimum Guarantees on Variable Products Indicator
Degree to which liabilities of firms are cash-flow matched in practice
56. The minimum guarantees indicator is based on a contractual assessment of the ability offirms to match the cash flows arising from guarantees. Firms may, in practice, be
restricted (or choose to restrict) the degree to which cash flows can be matched. This will
be taken into account in Phase III. However, any data provided by firms must be
interpreted with caution as the calculation of the duration of liabilities is based onassumptions.
Derivatives to hedge guaranteed returns for variable products
57. The minimum guarantees indicator is net of risk mitigation. This is appropriate because
hedging could reduce micro-prudential risk, but may not reduce macro-prudential risk,
because it transfers the exposure to a third party. Certain derivatives could pose higher
risks than others. One example of a mitigating factor is the use of centrally cleared
derivatives. One example of an exacerbating factor is the use of over-the-counter
derivatives.
Liability Liquidity Indicator
Purpose of the policy
58. The purpose of a policy may play a relevant role in the likelihood of policyholder runs
occurring. Specifically, policies that are principally providing protection are less likely toresult in runs as policyholders would typically value the protection feature. One example
of a mitigating factor is policies principally providing protection. One example of an
exacerbating factor is policies principally providing savings.
Surrender value relative to market value of underlying assets
59. Run dynamics tend to be aggravated where the surrender value exceeds the market
value of underlying assets; this provides incentives for policyholders to surrender early toensure there is money left (the typical “bank run”). One example of a mitigating factor iswhere the surrender value cannot contractually exceed the market value of underlying
assets. One example of an exacerbating factor is where the surrender value cancontractually exceed the market value of the underlying assets.
Supervisory Interventions: stays and lowering surrender value
60. Some supervisors have tools at their disposal, such as the authority to impose stays orlower surrender values, that can prevent runs or mitigate the impact of runs on thefinancial system. One example of a mitigating factor is supervisory interventions (such asstays and the lowering of surrender values) are legally feasible and can reasonably be
assumed to be used by supervisors in case of crisis. One example of an exacerbating
factor is that there are concerns that the use of supervisory stays could exacerbate
systemic risk through the disruption in market confidence caused by delayed payments.

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Maximum Contractual Stays
61. Some contracts allow for very long stays (under stressed conditions). One example of a
mitigating factor is that long contractual stays give insurers the flexibility to manage theoutflows somewhat in case of higher liquidity needs. One example of an exacerbating
factor is that those (long) contractual stays could potentially not be exercised in stressed
conditions, particularly if there is a discrepancy between normal pay-out times andcontractual maxima.
Replacement of Cover
62. Whether or not the replacement of cover is possible will affect the likelihood ofpolicyholder runs occurring. Specifically, disincentives for policyholders to surrenderpolicies are larger in case cover is not easily replaced by another insurer or policy due tounavailability of the same/similar cover and/or significant increase in premiums or othercosts for the same/similar cover. One example of an exacerbating factor is if cover iseasily replaced. One example of a mitigating factor is if cover is not easily replaced.
Tax Penalties
63. Although economic penalties encompass all monetary penalties including tax penalties,
Phase II only takes into account contractual penalties imposed by insurers. In practice,there may be other economic penalties to surrendering policies, including loss of tax
benefits, for instance through the tax treatment of policies and surrenders. One example
of a mitigating factor is the tax penalty upon surrendering, or the loss of a tax benefit (e.g.
exemptions from inheritance tax) after surrendering a policy.
The existence of policyholder protection schemes and mechanisms
64. Policyholder protection schemes and mechanisms can be effective in reducing incentives
for a policyholder to surrender their policies, especially if policyholder runs were driven byconcerns over the solvency of firms and fear of not receiving their account values. One
example of a mitigating factor is the existence of a credible and effective policyholder
protection scheme or mechanism. One example of an exacerbating factor is the lack of acredible policyholder protection scheme or mechanism.
Liquidity of assets
65. The IAIS is collecting information relating to the liquidity of an insurer’s invested assets.
This data and analysis allows the IAIS to further evaluate an insurer’s assets and support
a more accurate analysis of how the insurer’s failure could potentially transmit systemicrisk to the global financial system through the asset liquidation channel.
Policyholder surrenders at a large enough scale may lead to the forced sale of assets toensure policyholders can be paid. The forced sale of illiquid assets is more disruptive
than the sale of liquid assets. One example of a mitigating factor is assets that are veryliquid relative to liabilities. One example of an exacerbating factor is assets that are very
illiquid assets relative to liabilities.

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Derivatives collateral requirements
66. A liquidity shortfall at an insurer can arise not only from a large amount of policyholder
surrenders, but also from collateral posting requirements relating to derivative liabilities.
This was observed during the financial crisis. One example of a mitigating factor is if an
insurer has limited derivatives collateral needs under a variety of scenarios such as adowngrade or spike in interest rates. One example of an exacerbating factor is if an
insurer has large derivatives collateral needs under a variety of scenarios such as adowngrade or spike in interest rates.
Reinsurance Supplemental Assessment
67. The reinsurance supplemental assessment complements the other components of the2016 Methodology and allows the IAIS to assess risks associated with an insurer’s thirdparty reinsurance activities. The reinsurance supplemental assessment forms part ofPhase III and allows for a data and fact-driven analysis of insurers with significant thirdparty reinsurance activities. The reinsurance supplemental assessment will not lead to adouble counting of the activities included in the Phase II reinsurance indicator; rather itwill allow the IAIS to conduct a more in-depth analysis of third-party reinsurance
activities. The reinsurance supplemental assessment is only applied to insurers withsignificant third-party reinsurance activities that are subject to the Phase III analysis.
68. In particular, the IAIS evaluates the reinsurance activities of an insurer included in Phase
III if the insurer has reinsurance activities that generate EUR 10 billion or more in annual
gross written premium.
69. The reinsurance supplemental assessment evaluates a reinsurer’s market, regional (i.e.
the location of the origin of the risk), and institutional concentration risk, including tocurrent G-SIIs. The IAIS will collect and analyse data on regional and line of businessconcentrations in the reinsurance market.
70. The reinsurance supplemental assessment provides further insight into whether
reinsurance activities could lead to systemic loss transmission through the exposure,
asset liquidation, and critical function or service channels.
71. To evaluate whether a default of an insurer with significant reinsurance operations could
trigger the default of ceding insurers, the IAIS will collect and analyse data on ceding
insurers’ reinsurance recoverables, deposit assets, and other exposures to a given
reinsurer and compare these balances to the ceding companies’ book values. At aminimum, the IAIS will perform this analysis for all G-SIIs to assess how exposed eachwould be to the failure of insurers with significant third-party reinsurance operations, andto evaluate whether the failure of an insurer with significant third-party reinsurance
activities would potentially lead to a systemic impact upon the global financial system.
The IAIS will also collect and analyse data on reinsurance collateral.

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72. Under the asset liquidation channel, the IAIS will collect and analyse data regarding thepotential that an insurer’s reinsurance operations, also taking into account that insurer’s
access to other liquidity sources beforehand, could require that insurer to engage inasset sales of a sufficient size that could have systemic effects. Such asset sales could
result from the demand for settlement of reinsurance treaties (e.g., a forced commutation)or from additional collateral posting requirements after some event such as a ratings
downgrade. The IAIS will collect and analyse data regarding the potential liquidity needsof the reinsurance operations alongside the liquidity needs from other sources such as
from the use of short-term funding. As part of this analysis, the IAIS will take into accountthe liquidity of each insurer’s asset portfolio.
Conclusion of Phase III
73. At the conclusion of Phase III, the IAIS will generate a list of Prospective G-SIIs, each ofwhich shall be invited to participate in Phase IV of the 2016 Methodology. Phase III willcomplement Phase II and will be consistently applied and any conclusions from Phase III
will be supported by well-documented and verifiable quantitative and qualitative
information. Following Phase III, the IAIS will not advance an insurer to Phase IV if the
IAIS determines that the insurer’s failure or material distress would not cause significant
disruption to the global financial system and economic activity.
Phase IV: Exchange with Prospective G-SIIs
74. The IAIS and the relevant authorities will offer any insurer on the preliminary G-SII list an
opportunity to exchange information with the IAIS. In advance of this exchange, the IAIS
will share confidentially with the Prospective G-SII information regarding that insurer’s
status through the first three Phases.
75. Before the Phase IV exchange of information between the IAIS, the Prospective G-SII
and the relevant authorities, the IAIS will inform the Prospective G-SII of (1) the insurer’sscore on each of the Phase II indicators, including the data elements received from that
insurer that were incorporated into the indicator, (2) for each Phase II indicator,
descriptive statistics including the median scores and the distribution of scores within the
Insurer Pool (unless such disclosures could reveal confidential information regarding
another insurer given the size of the Insurer Pool for a specific indicator) (3) the insurer’s
overall score and the Phase II quantitative threshold set by the IAIS, and (4) the data andanalysis that was considered by the IAIS when evaluating the insurer in Phase III and theoutcome of that analysis. The relevant authorities will participate in this exchange of
information. This transparency to a Prospective G-SII, not provided through the 2013
Methodology, addresses comments from stakeholders and IAIS members in reply to the
IAIS’ paper Global Systemically Important Insurers: Proposed Updated Assessment
Methodology and facilitates constructive engagement and feedback between the IAIS,
relevant authorities and the Prospective G-SII.
76. The IAIS will not share any information with any Prospective G-SII that is not specific tothat insurer or otherwise generally applicable to the 2016 Methodology. Under nocircumstances will the IAIS share confidential information of another insurer with theProspective G-SII.

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77. During this exchange, the Prospective G-SII may ask questions and present additional
information relating to any aspect of the 2016 Methodology. The Prospective G-SII also
will have the opportunity to share with the IAIS its perspective and views on theapplication of Phases I – III to that Prospective G-SII and any accompanying explanatory
statements submitted to the IAIS. Phase IV will complement Phases II and III and will beconsistently applied and any conclusions from Phase IV will be supported by welldocumented and verifiable quantitative and qualitative information. Following Phase IV,
the IAIS will not advance an insurer to Phase V if the IAIS determines that the insurer’s
failure or material distress would not cause significant disruption to the global financial
system and economic activity.
Phase V: IAIS Recommendation to the FSB
78. Following annual completion of Phases I – IV of the 2016 Methodology, the IAIS will
recommend a list of identified G-SIIs, including Phases II through IV analysis supportingthat recommendation, and the application of higher loss absorbency (HLA) to the FSB.
The FSB determines whether to accept the IAIS recommendation and whether and, if so,when to publish the recommendation.
79. An insurer will be recommended for identification the first year the 2016 Methodology
produces that outcome. Identification as a G-SII by the FSB will then create a two-year
minimum presumption of G-SII status during which the IAIS will recommend theidentification be maintained even if the insurer’s score drops below the threshold after
Phases I through V. However, each G-SII shall annually participate in Phases I – V of the2016 Methodology, thereby allowing for the IAIS to monitor changes within the G-SIIs
and within the sector.
80. The 2016 Methodology may be used to assist the IAIS with the determination about theapplication of HLA to the G-SIIs. While at one time the IAIS contemplated a direct nexus
between the empirical phase of the Methodology (now known as Phase II) and theapplication of HLA to a G-SII, that direct nexus no longer exists. Any adjustments madethrough Phases III and IV will have a corresponding impact on the application of HLA.
The IAIS work on the 2016 Methodology and the NTNI consultation will be evaluated in
the context of HLA. The changes in the 2016 Methodology and the NTNI consultation willlead to a change in HLA design and calibration.

V.

Transparency

81. As described above, in Phase IV the IAIS will share with the Prospective G-SII detailed
information and data on Phase II and Phase III. After Phase V, the IAIS will share witheach G-SII the conclusions drawn from Phase IV.
82. For insurers that participate in Phases I and II that are not subject to Phases III – V, theIAIS shall, upon request of the insurers and through the relevant authorities, inform theinsurer of (1) the insurer’s score on each of the Phase II indicators, including the data
elements received from that insurer that were incorporated into the indicator, (2) for eachPhase II indicator, descriptive statistics including the median scores and the distributionof scores within the Insurer Pool (unless such disclosures could reveal confidential
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information regarding another insurer given the size of the Insurer Pool for a specificindicator), and (3) the insurer’s overall score and the overall Phase II quantitative
threshold set by the IAIS. This information will be shared after the annual publication by
the FSB of a G-SII list, if any. This non-public transparency to insurers participating in the
G-SII Assessment Methodology, not provided through the 2013 Methodology, addresses
comments from stakeholders and IAIS members in reply to the IAIS’ paper Global
Systemically Important Insurers: Proposed Updated Assessment Methodology andprovides the non-GSII participants a summary of the IAIS review of that insurer. This
information is not publicly shared at this time due to the non-public and confidential
nature of the information upon which this summary review may be based.
83. Following the annual publication by the FSB of a G-SII list, if any, the IAIS will publicly
release the following:
•
•
•
•
•
•

The aggregate totals for the denominators for each Phase II indicator.
The absolute reference values used for the Phase II indicators, including thenumerator, denominator, and any other factors used to establish the absolutereference value.
The data template and instructions used in that year’s G-SII assessment process.
The data elements from the data template that comprise the formulae for thePhase II indicators.
An analysis of aggregate trends in the Insurer Pool, including whether known
areas of systemic relevance (e.g. guaranty on structured finance transactions or
credit derivatives trading) warrant additional monitoring.
A description of the nature of the analysis undertaken in Phase III.

The IAIS will move toward a more transparent process for the identification of G-SIIs,
including to the public. As the 2016 Methodology is further refined in the coming years, theIAIS commits to further developing public disclosure. While considering all five phases ofthe 2016 Methodology as integral parts to a robust final outcome, the IAIS will look todisclose Phase II outcomes and Phase III analysis and outcomes as part of its next review
which it intends to complete in 2019. These elements of public transparency, not provided
through the 2013 Methodology, address comments from stakeholders and IAIS members
in reply to the IAIS’ paper Global Systemically Important Insurers: Proposed Updated
Assessment Methodology and provide the public with summary information of a critical,
non-confidential nature regarding the G-SII Assessment Methodology.

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