PublicTechnical Note on ICS Version 2.0 for the monitoring period
The following table summarises the changes to ICS Version 2.0 for the monitoring period
compared to 2019 Field Testing and should be read in conjunction with the Level 1 document
for ICS Version 2.0 for the monitoring period. The full description of 2019 Field Testing (2019FT) can be found in the Technical Specifications. Any component not described in the table
will use the approach (design and calibration) from 2019 Field Testing for ICS Version 2.0 for
the monitoring period. The Level 2 document with a full description of ICS Version 2.0 for themonitoring period will be released in early 2020. At such time, stakeholders should refer only
to the Level 2 document and not this technical note.
Reference to ICS
2019 FTComponent
5

Change compared to 2019 FTICS Balance Accounting: Added accounting guidance for nonSheet
insurance entities by defining various types of entities,
and then determining the accounting treatment togenerally align with the GAAP requirements. Additionally,guidance was developed for non-voting interest entities.
Capital Requirements for non-insurance entities:
Maintained the approach followed for the BCR/HLA
capital requirement with the addition of:

6MarketAdjusted
Valuation•

Proportional sectoral requirements for entities
reporting on the equity method (significantinfluence);•Equity risk charge for Market Value/GAAP Value
investments; and•

Equity risk charge for non-financial entities.

Middle Bucket criteria: Criterion c is modified torecognise liabilities that are partially, rather than fully,matched. A graduated benefit is applied for partial
matching of assets and liabilities. The longer the period ofmatching, the larger the benefit granted in the spreadcalculation. After the matching period ends, the spread isphased out, while ensuring that the spread stays between
that of the General Bucket and the maximum possible
spread of the Middle Bucket.
Spread over the LTFR: The spread over LTFR has beenrefined and depends on the real interest rateclassifications used for the calculation of the LTFR. Thespreads are:PublicTechnical Note on ICS Version 2.0 for the monitoring
period14 November 2019

Page 1 of 4

Reference to ICS
2019 FTComponent

Change compared to 2019 FT•••

20 basis points (developed economies);
25 bps (other developed economies); and35 bps (emerging markets)

Rolling hedges: The treatment of rolling hedges withrespect to valuation will use a similar approach to thatapplied to rolling hedges for market risks, including a 20%
haircut and a replacement frequency of not less than one
month.
9Qualifying
CapitalResources

Extraordinary calls for Tier 1 Limited financial
instruments: A provision for extraordinary calls is
introduced in the criteria for Tier 1 Limited financial
instruments to allow for calls in the first five years afterissuance of the instrument in cases of regulatory or tax
events, provided the instrument is replaced by another ofsimilar or better quality.
Tier 2 Basket: The Tier 2 basket limit is increased from
10% to 15% of the ICS capital requirement to address thecliff effect under a stress condition and to consider DTA
on MOCE in the Tier 2 basket. In addition, the amount ofcomputer software intangibles recognised in the basket issubject to a 90% haircut, compared to the previous haircutof 50%.
Principal Loss Absorbency Mechanism (PLAM): A
distinction is made for mutual and non-mutual IAIGs. For
non-mutual IAIGs, the 10% limit for Tier 1 Limited financial
instruments will be maintained for Tier 1 Limited financial
instruments that do not have a PLAM. An additional 5%
allowance is granted to those Tier 1 Limited financial
instruments that do have a PLAM. The limits are statedas a % of the ICS capital requirement.
For mutual IAIGs: A PLAM is not required as part of Tier
1 Limited capital resources and the limit for Tier 1 Limited
capital resources is maintained at 30% of the ICS capitalrequirement.
Acceleration Clauses: The IAIS will retain criterion i) forTier 2 Paid-Up financial instruments, which does not allow
acceleration clauses that may be triggered in going
concern. However, a national discretion will be allowed inorder to recognise acceleration clauses, provided all othercriteria are met.
The Kuala Lumpur Agreement states that:“The reference ICS could include a limited number ofnational discretions for issues that cannot be resolved. If

PublicTechnical Note on ICS Version 2.0 for the monitoring
period14 November 2019

Page 2 of 4Reference to ICS
2019 FTComponent

Change compared to 2019 FT
national discretions are used, the impact of those national
discretions should be reconcilable.”
Therefore, jurisdictions that wish to recognise
acceleration clauses that may be triggered in going
concern may do so, provided IAIGs from thosejurisdictions provide a reconciliation of the impact
between the reference ICS with and without acceleration
clauses that may be triggered in going concern.
Make-Whole Call Provisions: Criterion e) for Tier 2 PaidUp financial instruments is modified to recognise financial
instruments that are callable within the first five years fromthe date of issue, provided that:• Any such call is at the option of the issuer only
(the instrument is not retractable by the holder);• Any such call is subject to supervisory approval;
and• The called instruments must be replaced in full
before or at redemption by a new issuance of thesame or higher quality instruments.
For structurally subordinated financial instruments, therequirement for supervisory approval of such calls can befulfilled through the exercise of supervisory controls andsupervisory review, including the ability (direct/indirect)
for supervisors to limit, defer and/or disallow the issuanceor redemption of capital instruments.

11Consistent
The percentile-MOCE is maintained. The calibration isandincreased to 85% (from 80%) for life business andComparable
maintained at 65% for non-life business.
Margin over
Current
Estimate

12.3

Insurance
Risks - Life

12.3

Insurance
The Premium and Claims Reserve risk factors wereRisks – Non- refined for the following lines of business in Australia &Life
New Zealand (AU & NZ) and Hong Kong SAR (HK SAR):

The Level and Trend Lapse risk stress for businesswritten in Japan is reduced to 20% from 25%.

Premium Risk
AU and NZ – Medical expense
insurance

15%

Claims Reserve Risk
AU and NZ – Consumer credit
PublicTechnical Note on ICS Version 2.0 for the monitoring
period14 November 201915%Page 3 of 4

Reference to ICS
2019 FTComponent

Change compared to 2019 FT
AU and NZ – Other type B

35%

HK SAR – Goods in transit

50%

HK SAR – Fire & Property Damage

20%

HK SAR – General liability

26%

HK SAR – Non-proportional treaty
reinsurance

25%

12.4.3Equity risk

The impact of running the level and volatility stresses incombination will not be requested.

12.4.6

Asset
concentration
risk

The Granularity Adjustment (GA) will be simplified suchthat the number of counterparties used to calculate theGA must be at least 10 to a maximum of 100. In addition,
the GA formula will be refined to introduce a weighting
factor of 95% (rather than 100%) for equity exposures.
Finally, the 2018 Field Testing approach to asset
concentration risk will not be requested.

12.5

Credit risk

Agent/Broker Balances: A stress factor of 6.3%, derived
from the Credit risk factor for unrated short-term
exposures, will be used for agent/broker balances.

13Tax

Deferred Tax Impact on MOCE: The percentile MOCE
will be considered a temporary difference for taxpurposes. No deduction is applied to the DTA resulting
from MOCE.
Tax Effect on the Insurance Capital Requirement: Theutilisation assessment is the minimum of 20% of the ICS
insurance capital requirement and the sum of tax loss
carry backs (15% haircut), future income using 5 year
historical GAAP income multiplied by the group effective
tax rate (50% haircut), and net DTL less the net DTA(limited to 15% of the ICS insurance capital requirement).
Deferred taxes on the ICS balance sheet are offset before
performing this calculation.

PublicTechnical Note on ICS Version 2.0 for the monitoring
period14 November 2019

Page 4 of 4