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Holistic Framework for Systemic Riskin the Insurance Sector:
Global Monitoring Exercise
November 2019

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About the IAISThe International Association of Insurance Supervisors (IAIS) is a voluntary membershiporganisation of insurance supervisors and regulators from more than 200 jurisdictions. The
mission of the IAIS is to promote effective and globally consistent supervision 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.
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 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 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 61 280 8090 Fax: +41 61 280 9151
www.iaisweb.org
This document is available on the IAIS website (www.iaisweb.org).
© International Association of Insurance Supervisors (IAIS), 2019.
All rights reserved. Brief excerpts may be reproduced or translated provided the source isstated.

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Contents
Acronyms .............................................................................................................................. 5
1

2

3

Objective of the global monitoring exercise .................................................................... 6
1.1

Individual insurer monitoring ................................................................................... 7

1.2

Sector-wide monitoring ........................................................................................... 7

1.3

Regular review ........................................................................................................ 8

1.4

Process of the global monitoring exercise ............................................................... 8

Monitoring categories ................................................................................................... 10
2.1

Overview of SWM and IIM categories ................................................................... 10

2.2

Mapping between SWM and IIM ........................................................................... 13

Data collection ............................................................................................................. 14
3.1

4

3.1.1

IIM scope of data collection: Insurer Pool selection ........................................ 14

3.1.2

SWM scope of data collection ........................................................................ 14

3.2

Data collection preparation and launch ................................................................. 15

3.3

Data validation ...................................................................................................... 15

Assessment of systemic risk ........................................................................................ 16
4.1

Absolute assessment approach ..................................................................... 17

4.1.2

Relative rankings ........................................................................................... 17

4.1.3

Cross-sectoral analysis .................................................................................. 18

4.1.4

Trend developments ...................................................................................... 19

4.1.5

Ancillary risk indicators .................................................................................. 19

SWM assessment of systemic risk ........................................................................ 19

4.2.1

Quantitative assessment ................................................................................ 20

4.2.2

Qualitative assessment .................................................................................. 20

4.3

6

IIM assessment of systemic risk............................................................................ 16

4.1.1

4.2

5

Scope of data collections ...................................................................................... 14Interplays between SWM and IIM ......................................................................... 20

Feedback loop with IAIS Members and stakeholders ................................................... 22
5.1

Feedback loop with IAIS Members ........................................................................ 22

5.2

Roundtable discussions with external stakeholders .............................................. 22

IAIS collective discussion ............................................................................................. 23
6.1

Criteria related to IIM ............................................................................................ 23

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7

6.2

Sector-wide monitoring ......................................................................................... 24

6.3

Content of the collective discussion ...................................................................... 24

6.4

Outcome of the collective discussions................................................................... 25

Reporting ..................................................................................................................... 26
7.1

Reporting to participating insurers......................................................................... 26

7.2

Reporting to IAIS Members ................................................................................... 26

7.3

Reporting to FSB .................................................................................................. 26

7.4

Reporting to the public .......................................................................................... 27

Annex: Detailed explanation of changes to IIM risk indicators ............................................. 29

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PUBLICAcronyms
ARV
BCBS
FSB
GIMAR
GME
GRMS
G-SIB
G-SII
IAIG
IAIS
ICP
IFA
IFL
IIM
KIRT
LL
OTC
SFT
STF
SWM

Absolute Reference Value
Basel Committee on Banking Supervision (also Basel Committee)
Financial Stability Board
Global Insurance Market Report
Global Monitoring Exercise
Global Reinsurance Market Survey
Global Systemically Important Bank
Global Systemically Important Insurer
Internationally Active Insurance GroupInternational Association of Insurance Supervisors
Insurance Core Principle
Intrafinancial assets
Intrafinancial liabilities
Individual Insurer Monitoring
Key Insurance Risks and Trends
Liability Liquidity
Over the counter
Securities Financing Transactions
Short term funding
Sector-wide monitoring

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1

Objective of the global monitoring exercise

1.
To support its mission of effective and globally consistent supervision to protect
policyholders and to contribute to global financial stability, the International Association of
Insurance Supervisors (IAIS) adopted in November 2019 the holistic framework for theassessment and mitigation of systemic risk in the global insurance sector (“holistic
framework”), as described in the overarching document.1 This document describes in moredetail the objectives and process of the IAIS’ global monitoring exercise (GME). As a key
element of the holistic framework, the GME serves to assess global insurance market trends
and developments and to detect the possible build-up of systemic risk in the global insurance
sector. This includes an annual assessment by the IAIS of potential systemic risk arising fromsector-wide trends with regard to specific activities and exposures, but also the possible
concentration of systemic risks at an individual insurer2 level (using an updated assessment
methodology) arising from these activities and exposures.
2.

The GME includes the following elements:

Sector-wide monitoring (SWM);
Individual insurer monitoring (IIM);
Data analysis by the IAIS to assess any potential systemic risk stemming from a sectorwide or individual insurer level, considering also broad financial market developments;
Collective discussion3 of the results of the assessment within the IAIS. This discussion
has the following key aspects:
o
o

o



Assessment of trends and any systemic risks identified at a sector-wide level;
Consideration of trends in risks and increasing levels arising from potentiallysystemic activities and exposures concentrated in an individual insurer, that
could ultimately have a global systemic impact in case of its distress or
disorderly failure; andConsideration of appropriate supervisory responses, including enhanced
supervisory policy measures and/or powers of intervention, taking into accountthe assessment of those supervisory policy measures and/or powers ofintervention that have already been implemented.

Reporting to participating insurers, IAIS Members, the Financial Stability Board (FSB),
and the public.

3.
The GME supports the IAIS in its 2020-2024 Strategic Plan4, specifically High Level
Goal 1: The IAIS assesses global market trends and developments in, or relevant to, the1

See https://www.iaisweb.org/page/supervisory-material/financial-stability
Where this document refers to the term ‘individual insurer’ this is to distinguish clearly to risks stemmingfrom individual insurers versus risks stemming from collective exposures and activities and does notrefer to individual legal entities.
3 This collective discussion will take place in coordination with the relevant supervisor where an
individual insurer is involved.
4 See https://www.iaisweb.org/page/about-the-iais/strategic-plan
2

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insurance sector and responds to issues that present opportunities, challenges and risks
relevant to the IAIS’ Mission.
4.
The holistic framework also allows for the introduction of a feedback loop between the
global monitoring by the IAIS and macroprudential surveillance and supervision at thejurisdictional level. Vulnerabilities building up in certain jurisdictions may have crossjurisdictional implications. Additionally, understanding jurisdictional and regional trends
facilitates understanding of global trends.
1.1

Individual insurer monitoring

5.
The IIM is aimed at assessing systemic risk stemming from an individual insurer’s
distress or disorderly failure, recognising that potentially systemic activities or exposures may
become concentrated in an individual insurer, such that its distress or disorderly failure would
pose a serious threat to global financial stability. The IIM is one of the two main componentsof the GME together with the SWM. Under the holistic framework, an updated assessment
methodology has been adopted to support this assessment. However, the assessment
methodology is only one input to the broader IIM, see notably Chapter 4.1 for a full overview
of the analyses that form part of the IIM.
6.
The IAIS initially developed a methodology for identifying global systemically important
insurers (G-SIIs) in 2013 (“the 2013 Methodology”). As stated therein, 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 andapproaches for measuring systemic importance in the insurance sector and the broader
financial sector. Therefore, in 2016 the IAIS adopted an updated methodology (“the 2016
Methodology”). The 2019 IIM assessment methodology replaces the 2016 Methodology aspart of its regular three-year review. The 2019 Methodology will first be applied during the2020 global monitoring exercise.
1.2

Sector-wide monitoring

7.
The SWM is aimed at assessing sector-wide trends with regard to specific activities
and exposures and consists of both a qualitative and quantitative part. It is a complement to
the IIM, and both their outcomes will feed into the IAIS’s assessment of systemic risk as wellas in the IAIS collective discussion. The SWM brings together existing IAIS efforts related tomacroprudential surveillance and broader market surveillance, including the:

IAIS Key Insurance Risk and Trends (KIRT) Survey: a voluntary, annual survey
amongst IAIS Members about their qualitative assessment of risk;
IAIS Global Reinsurance Market Survey (GRMS): a data collection amongst relevant
IAIS Members, the results of which are annually reported to the general public within
the Global Insurance Market Report (GIMAR); andIAIS GIMAR: which provides an overview of trends and developments in global
insurance markets along with a series of topical chapters which allow to develop a
global view on relevant issues from the perspective of insurance supervisors.

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8.
Combining these efforts allows the IAIS to gain a more holistic view on systemic risk
and trends in global insurance markets.
9.
With the holistic framework, the IAIS enhances the qualitative KIRT Survey by adding
a quantitative component to further support global macroprudential and broader market
surveillance.
10.
The SWM enhances the existing IAIS macroprudential surveillance efforts and isfacilitated by an annual data collection exercise that contains the following elements:Quantitative and qualitative information from IAIS Members, based on:
o
o


1.3

A quantitative data collection that aggregates data from legal entities operatingin IAIS Member jurisdictions in specific categories; andA qualitative information request that covers supervisors’ assessments ofmacroprudential risks, in terms of probability, impact and trends.

Data collection by the IAIS Secretariat for other broad market and macroeconomic
surveillance indicators, based on public sources.
Regular review

11.
The GME will continue to evolve, including through a regular review of the IIM
assessment methodology and the SWM every three years, in order to capture improvementssuggested 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 measuring systemic importance in the insurance sector and the broader
financial sector.
12.
The first review will thus take place in 2022 and will serve as an input to the FSB’sreview of the holistic framework, which includes the decision to either discontinue or reestablish an annual identification of G-SIIs.
13.
In addition, the IAIS will annually review and, if necessary, revise IIM and SWM datacollections in order to continue to improve and streamline the data collections for upcoming
years, taking into account the costs and benefits.
1.4

Process of the global monitoring exercise

14.
The GME follows the following process (each step is described in detail further in thismemorandum):

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Data collection

Chapter 3

Data analysis - Assessmentof systemic risk

Chapter 4

Feedback loop with IAIS
Members and stakeholders

Chapter 5

Collective discussion at the
IAIS

Chapter 6

IAIS reporting to FSB andstakeholders

Chapter 7

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2

Monitoring categories

2.1

Overview of SWM and IIM categories

15.
The GME serves to assess relevant global insurance market trends and developments
as well as the potential global build-up of systemic risk, by monitoring the following ten
categories:











Size
Global activity
Interconnectedness – Counterparty exposure
Interconnectedness – Macroeconomic exposure
Asset liquidation
Substitutability
Underwriting & Solvency
Policyholder behaviour
Emerging risks
Economic environment

The rationale behind each of these categories is briefly described below.
Size
16.
Size and global activity are not sources of risk on their own. However, they may work
as risk amplifiers and are relevant in the assessment of systemic risk in the insurance sector.
17.
The importance of a single component (a sector or an insurer) for the functioning of
the financial system generally increases with the amount of financial services that thecomponent provides. It should be recognised, however, that in an insurance context, size isalso a requisite for the effective pooling and diversification of risks.
18.
An insurer’s distress or disorderly failure is more likely to damage the global economy
or financial markets if its activities comprise a large share of the global insurance activity. The
larger the insurer, the more difficult it may be for its activities to be quickly replaced by otherinsurers and, therefore, the greater the chance that its distress or disorderly failure could cause
disruption to the financial markets in which it operates. The distress or disorderly failure of alarge insurer is also more likely to damage confidence in the insurance system as a whole.
Global activity
19.
This category is aimed at identifying components of the financial system whose failure
can have large negative externalities on a global scale and to capture the components’ global
footprint. The international impact of an insurer’s distress or disorderly failure is likely to varyin line with its global footprint. The greater its global reach, the more difficult it may be tocoordinate its resolution and the more widespread the spill over effects from its failure.
Interconnectedness

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20.
Interconnectedness refers to interlinkages with other parts of the financial system andthe real economy. Two main aspects of interconnectedness are counterparty exposure andmacroeconomic exposure.
Interconnectedness – Counterparty exposure
21.
Counterparty exposure refers to direct exposures between an insurer and otherinstitutions, which lead to both institutions becoming vulnerable to the distress or disorderly
failure of the other. Counterparty risk may become a concern, depending on various factors,
such as the concentration of the exposures (both in absolute terms and relative to the insurer’sbalance sheet), the correlations of exposures across the insurance sector, and the type ofcounterparty (whether the counterparty itself is systemic). In some markets, insurers provide
a significant source of funding and liquidity to the banking sector, through holdings of bankdebt and loans of high-quality securities from their bond portfolio. Examples of direct
exposures are asset holdings (such as debt or equity securities, derivatives, or other financialtransactions) towards specific entities, sectors or asset classes such as other financial
institutions or sovereign positions.
Interconnectedness – Macroeconomic exposure22.
One way that systemic risk can arise is through common exposures tomacroeconomic risk factors across institutions, such as interest rates, FX rates, real estateand equity prices. In such cases, the underlying exposures are highly correlated with eachother and with the market, limiting the potential to diversify through the pooling of idiosyncraticrisks. If a firm’s financial position is highly correlated with the broader economy, the systemic
impact of failure increases.
23.
Similarly, correlated exposures increase the probability of common behaviours of
insurers, when they react to certain events. Insurers’ common macroeconomic exposuresincrease the likelihood that many insurers will have correlated weaknesses, leading tocorrelated losses from other shocks and an increased potential for a “too many to fail”
scenario. For example, a prolonged low interest rate environment could result in insurers
offering unmatched guaranteed returns in search of better yields, potentially increasing theirvulnerability to credit risk related shocks.
Asset liquidation
24.
Asset liquidation is the sale of assets at a speed or scale that has the potential toexacerbate market movements and trigger losses for firms with similar holdings. One common
cause of asset liquidation is the materialisation of liquidity risk.
25.
Liquidity risk arises as a result of imbalances between liquidity sources and needs –for instance, liquidity needs can increase due to material policyholder lapse or increasing
margin calls from derivative activities. It becomes a macroprudential concern if a shock (thetrigger event) leads to reactions causing liquidity shortages in a particular sector.
26.
If liquidity risk materialises for an insurer or a number of insurers, this could trigger adownward spiral in the financial markets. If insurers have to accept sizeable cuts on their asset
values to satisfy outflows, they could face losses, and may even be forced to sell additional
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assets, which could aggravate the systemic impact. Through these price impacts, shocks
could be transmitted to other parts of financial markets and the real economy by triggering
write-downs on similar assets at other firms, distorting the signalling function of prices or
impacting the ability of firms to fund activities.
Substitutability
27.
The systemic importance of a single insurer increases in cases where it is difficult forother insurers of the financial system to provide the same or similar services on similar terms
in the event of failure. The degree of concentration or competitiveness in the relevant market
may give an indication of the risk of disruption of supply of insurance coverage in that market.
Underwriting & Solvency
28.
This category is included to monitor underwriting and solvency risks, to provide insight
into general trends and developments in the insurance sector, its resilience, profitability andother characteristics.
29.
Wide-spread under-reserving, without the possibility to reprice, may also have asystemic impact due to correlated actions resulting from competitive markets, especially forlong-term business of life insurance that is more difficult to price and adequately reserve forfrom the outset. New insurance businesses may expose companies to the risk of inadequate
provisioning/mispricing due to the lack of expertise and/or lack of historical data. Underwriting
contracts for which premium income does not adequately cover claims, or for which theassumptions used for the calculation of the provisions are not appropriate, may lead to distressat the insurer-level. Consequently, reactions of insurers may generate systemic impacts
through wide-spread asset liquidation or reallocations, and/or the eventual collective failingsof several insurers. This would also capture insurance exposures that may impact a significant
part of the insured population, such as pandemic or long-term mortality trends.
Policyholder behaviour
30.
This category is included for general monitoring of trends and developments in theinsurance sector, focusing on indicators such as lapse rates or persistence.
Emerging risks
31.
This category covers other emerging risks with potential systemic implications, which
are not captured by the other categories and may emerge and accelerate in the near future.
This category may include environmental developments and increasing cyber and FinTech
activities that may increase the systemic risk footprint. This category includes, for example,
climate risk, catastrophe risk, cyber risk and their impact on operational risk.
Economic environment
32.
This category includes publicly available macro variables that may be used for broader
macroprudential monitoring and analysis. The economic environment category captures, forexample, GDP, employment and unemployment rates, population, labour force, wages
development, productivity and labour costs, inflation and fiscal balances. Monitoring the
economic environment is aimed to provide background and to support and facilitate the IAIS
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assessment of systemic risk. It may provide additional nuance, the environment in which
insurers operate as well as provide insight in possible risks building up outside the insurance
sector that may ultimately affect insurers.
2.2

Mapping between SWM and IIM

33.
In order to allow for interplays between SWM and IIM, the IAIS mapped the various
indicators, using a single set of GME categories. The starting point for the data collection
exercise is the exposures that are identified as potentially systemic, as well as thetransmission channels. Both monitoring exercises include the following categories:
Category

IMM SWM

Size

X

Global activity

XInterconnectedness - Counterparty exposure

X

X

Interconnectedness - Macroeconomic exposure

X

X

Asset liquidation

X

X

Substitutability

X

X

X

Underwriting & Solvency

X

Policyholder behaviour

X

Emerging risks

X

Economic environment

X

Table 1. Mapping between IIM and SWM
34.
For each of the common categories, the IAIS analysis will aim to compare trends anddevelopments at a sector-wide level versus individual insurer level and the Insurer Pool level.
For some of the categories, this may be based on a more qualitative assessment, whereas forother categories, the IAIS will perform a quantitative comparison between activities andexposures within the Insurer Pool compared to the global sector developments.

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3

Data collection

35.
The first step in the GME process is the data collection. The data collection consists ofa preparatory phase, including defining the scope for the data collection, the actual collectionof data, as well as the data validation.
3.1

Scope of data collections

3.1.1

IIM scope of data collection: Insurer Pool selection

36.
Insurers that meet at least one of the following criteria are eligible for inclusion in the
Insurer Pool, from which data will be collected – subject to the provisions in paragraph 37:
Total assets of more than USD 60 billion and a ratio of premiums from jurisdictions
outside the home jurisdiction to total premiums of 5% or more; orTotal assets of more than USD 200 billion and a ratio of premiums from jurisdictions
outside the home jurisdiction to total premiums greater than 0%.

The above-mentioned criteria are tested on a group level, including all insurance and noninsurance subsidiaries.
37.
In exceptional circumstances that are analytically supported, the IAIS and relevant
authorities may choose not to collect data from an insurer that otherwise meets the criteria, orto collect data from an insurer that does not meet the criteria, to allow a more representative
Insurer Pool for systemic risk analysis.
3.1.2

SWM scope of data collection

38.
The SWM relies on aggregated data from legal entities operating in IAIS Member
jurisdictions. Participation in the SWM is open to all IAIS Members. For the purpose ofmonitoring global trends, there needs to be sufficient coverage of the global insurance sector.
Therefore, at least IAIS Members whose insurance or broader financial markets play asignificant role in the global financial system are participating in the exercise.
39.
As a result, the following criteria allow for broad coverage in terms of global
participation:

The jurisdiction is a member of the FSB; or
The jurisdiction is a home jurisdiction of at least one Internationally Active InsuranceGroup (IAIG) and/or of an Insurer Pool participating insurer.

These jurisdictions together account for a global market share of more than 85% percent
of gross written premiums, based on 2018 data.
40.
As regards the scope within a jurisdiction, it is expected that a jurisdiction provides
reasonable coverage and a representative sample (for example, in terms of business models
or risk profiles). Given that this is a new data collection exercise, it is expected that the overall
data coverage may increase in the first years of implementation of the holistic framework. A
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3.2

60 percent of the local insurance market.
Data collection preparation and launch

41.
The IAIS prepares annually an IIM and SWM data collection package. The datacollection packages include:

IIM and SWM Templates;
IIM and SWM Technical Specifications5;andIIM and SWM Questionnaires6.

Technical specifications for the IIM and SWM are described and defined in the documents“IIM Technical Specifications” and “SWM Technical Specifications” respectively.
3.3

Data validation

42.

Data validation of both IIM and SWM data includes but is not limited to:Year-over-year analysis of insurers’ and SWM data;
Year-over-year analysis of indicator scores;
Comparison with annual reports and other publicly available sources of data; andPeer reviews and analysis of indicator scores drivers.

5 Previously referred to as “Instructions”.
6 Previously referred to as “Explanatory Statement”.

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4

Assessment of systemic risk

43.

The second step in the GME process is the assessment of systemic risk.

4.1

IIM assessment of systemic risk

44.
The IIM assessment is no longer focussed on identifying prospective G-SIIs, but rather
aims to support a comprehensive assessment by the IAIS on the potential build-up of systemicrisk in the insurance sector as a whole by looking at potential systemic risk from activities or
exposures concentrated in individual insurers. The assessment includes:






Individual absolute assessment: scores of individual insurers are calculated based on
an absolute indicator-based methodology;
Individual relative assessment: scores of individual insurers are calculated based on arelative indicator-based methodology;
Cross-sectoral analysis, comparing the systemic footprint of individual insurers and theInsurer Pool with that of banks;
Trend developments within the Insurance Pool; andAncillary indicators, such as liquidity risk metrics.

45.
The IIM assessment is based on data collected from five categories that include 14
indicators. Compared to the 2016 Methodology, three indicators were dropped and fiveindicators were refined (see Annex). This indicator-based methodology is used for calculatingscores both on an absolute and relative basis.
46.
The categories, indicators and indicator weights are shown in the table below(indicators using absolute reference values (ARVs) are shown with an asterisk):
Category

Indicator

2019 Weight

Total assets

2.5%

Total revenues

2.5%

Revenues outside of home country

2.5%

Number of countries

2.5%

Intra-financial assets

9.4%

Intra-financial liabilities

9.4%

Derivatives

9.4%

Derivatives Trading (CDS or similar derivatives
instrument protection sold)

9.4%*

Financial guarantees

9.4%*

Minimum guarantees on variable products

9.4%

Short term funding
Level 3 assets

9.4%
9.4%

Size
Global activity

Interconnectedness

Asset liquidation

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Substitutability

Liability liquidity

9.4%

Premiums for specific business lines

5.0%

Table 2. 2019 Methodology categories, indicators and weights
4.1.1

Absolute assessment approach

47.
Following the validation of data, for each insurer in the Insurer Pool, the IAIS calculates
an indicator-based overall quantitative score. These scores are based on the individual scoresfor each of the 14 indicators, which are multiplied by the respective weights and, whereapplicable, are multiplied by absolute reference values and then summed to an overall
quantitative score for each insurer. The individual quantitative assessment provides an initialquantitative ranking of the systemic importance.
48.
The IIM assessment methodology is predominantly based on an absolute assessment
approach (ie calculating scores of insurers against a fixed benchmark based on the sample
total in a defined base year). With this absolute approach, scores should better reflect changes
in the systemic footprint of each insurer within the sample, compared to the 2013 and 2016
Methodologies which were based on a relative assessment approach. The base year for theabsolute methodology is set using denominators from the data exercise year 2018. This will
be reviewed during the next regular review.
Absolute reference values
49.
ARVs were introduced in the 2016 Methodology as an additional factor to better assess
systemic importance of the Insurer Pool within the broader insurance sector or financial
system. 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 amountsummed across all insurers in the sample. ARVs are derived from financial market totals andcreate a scaling factor, which is multiplied by the weight of each of the three indicators to bettermeasure systemic importance.
50.
As the 2019 Methodology applies the absolute assessment approach, the ARVs thatare applied to calculate the scores for the derivatives trading and financial guarantees
indicators are fixed based on their year-end 2017 values. This amounts to an ARV for
derivatives trading of 16.06% and for financial guarantees of 6.09%. The IAIS will, however,continue to closely monitor the overall developments in these markets and any significant
increase in activity and reconsider the ARVs as part of the regular reviews of the methodology.
4.1.2

Relative rankings

51.
Relative rankings continue to be calculated as information input for the collective
discussions. Relative rankings are calculated using the updated indicators and weighting fromthe 2019 Methodology as described above, but using the denominators of the relevant
exercise year.

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4.1.3

Cross-sectoral analysis

52.
Cross-sectoral analysis is aimed at comparing the systemic footprint of insurers withother components of the financial system, notably banks. Such analysis includes thecomparison of scores of insurers and banks using common indicators. The Basel Committeeon Banking Supervision’s (BCBS’s) Global Systemically Important Bank (G-SIB) exercise
provides a useful benchmark for performing such analysis. It is generally accepted that banks
may be systemic, and therefore, a comparison to systemic banks provides a useful baseline
to assess insurers.
53.
The G-SIB methodology includes twelve indicators, spread across five categories (seeTable 3). A bank’s indicator score is calculated as its market share of each indicator (relative
assessment approach is used) and its total quantitative score is a weighted average of theindicator scores. Any firm scoring above 130 is identified as a G-SIB (with severely limited
scope for exclusion).
54.
Comparison of the insurance scores to the banking scores is possible using common
indicators for which data is also collected as part of the IIM. Because this analysis relies only
on some indicators in both methodologies, this is only a partial comparison. As part of the IIM,
the IAIS will compare trends between the Banking and Insurer Pools as a whole, as well as
analyse the relative systemic footprint of individual insurers versus banks.
55.

The indicators used in the G-SIB methodology are the following:
Category
Size

G-SIB Indicator

G-SIB Weight

Total exposures

20.0%

Cross-Jurisdictional Claims
Cross-Jurisdictional Liabilities
Intra-Financial System Assets
Interconnectedness Intra-Financial System Liabilities
Securities Outstanding
Notional Amount of over-thecounter (OTC) Derivative Contracts
Trading and Available-for-Sale (AFS)
Complexity
Securities
Level 3 Assets
Payments Activity
Assets Under Custody
Substitutability
Underwritten Transactions in Debt andEquity Markets
Table 3. G-SIB methodology categories, indicators and weights

10.0%
10.0%
6.7%
6.7%
6.7%
6.7%

Global activity

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6.7%
6.7%
6.7%
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4.1.4

Trend developments

56.
Trend analysis continues to be performed and used as information input for the overall
assessment. Trend analysis includes developments of denominators (for each quantitative
indicator), drivers of those developments, identification of outliers and data issues, and impact
analysis of foreign exchange rates or sample fluctuations. Trend analysis covers also a
comparison of individual insurers’ versus Insurer Pool developments.
4.1.5

Ancillary risk indicators

57.
To further aid the assessment of systemic risk in the global insurance sector, the IAIS
can make use of ancillary indicators in its analysis. Ancillary indicators do not affect the total
individual quantitative score. However, they may provide additional context that can inform theoverall assessment.
58.
The IAIS is currently developing liquidity metrics. These liquidity metrics will serve asa tool for the IAIS to assess insurers’ liquidity exposures. They will not be a binding
requirement, but rather a monitoring tool, and will help identify trends in insurer and insurancesector liquidity. The IAIS plans to consult on metrics for liquidity monitoring in 2020 and 2021.
59.
The IAIS will capture technical provisions ceded in the intrafinancial assets indicatorwhich will allow the capture of any link reinsurers have owing to assumed business, and will
also reflect primary insurers’ exposures to reinsurers. In order for the informational value ofreinsurance connections to not get lost in the intrafinancial assets and liabilities indicators, theIAIS considers monitoring the development of reinsurance technical provisions (ceded andassumed) as ancillary indicators.
60.
The IAIS may consider developing other ancillary indicators, based on the evolution of
the risk profiles of insurers and the potential contribution to assessing the build-up andtransmission of systemic risk.
4.2

SWM assessment of systemic risk

61.
The SWM data analysis aims to assess the key risks and trends in the global insurance
sector, considering the underlying drivers. For the purpose of the holistic framework, the SWM
assessment focusses on the identification of systemic risk.
62.
The IAIS will carry out assessment of the sector using the above mentioned data
sources with focus on nine SWM categories and their interrelations7.
63.

The assessment of the sector includes at least:Quantitative assessment;
Qualitative assessment; andTrend analysis.

7 Cf. Table 1. Mapping between IIM and SWM.

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4.2.1

Quantitative assessment

64.

The quantitative assessment will use various statistical methods, including:




4.2.2

Data coverage analysis;
Level and trend analysis; andInterrelation between insurance and macroeconomic developments.
Qualitative assessment

65.
The qualitative assessment allows for a forward looking supervisory assessment of the
key risks and trends in their respective insurance sector.
66.
Supervisors assess the perceived probability of certain risks materialising (lowmedium-high), the expected impact should the risk materialise in the local market (lowmoderate-high), and the evolution since last year. In addition, supervisors are asked to identify
those risks they currently consider as high-priority.
67.
Next to the key risks, supervisors also assess the key trends in their insurance sector,
for example regarding profitability, underwriting, investment returns, market volatility andreserve adequacy. For each of the key sector trends, supervisors assess whether the trend
shows a moderate or strong increase/decrease or if it has remained stable.
68.
Finally, also external developments are considered in the qualitative assessment,
acknowledging that the insurance sector could be impacted by changes in societal andeconomic conditions. Supervisors assess whether, in their jurisdictions, any developments
were observed during the reporting period that would impact policyholder behaviour.
Examples of such developments could be fraud in the non-life and life segments or changes
in the surrender rates of life insurance policies.
4.3

Interplays between SWM and IIM

69.
To allow for an integrated view on the possible build-up of systemic risk in the global
insurance sector, there is a need to combine the outcomes of the SWM and IIM datacollections.
70.
The two data collections can be complementary, as both target the same risks but froma different perspective. The outcomes of the SWM data collection, which is expected to cover
more than 85% of the global insurance market in terms of gross written premiums, can provide
a broad overview of trends, complemented by data collected from around 50 insurance groups
in the Insurer Pool of the IIM, which is expected to cover approximately 25% of the global
insurance market in terms of gross written premiums.
71.
The IIM complements the SWM by providing insights into the level of concentration ofrisks or potential outliers at the level of most significant players in the insurance sector. It also
allows a deeper dive into potentially emerging risks and trends identified through the SWM.
72.
Looking at sector-wide and individual insurers’ trends adds the necessary forwardlooking perspective and also includes the assessment of outliers (ie insurers whose exposuresdevelop in a different direction or at a faster pace than those of peers). Increased levels of
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exposure and activity, both at the sector-wide and the individual insurer level, also require
careful attention. Even in the absence of an individual insurer whose distress or disorderly
failure would pose a serious threat to global financial stability, high levels of concentration ofcertain activities or exposures among several individual insurers or within a number ofjurisdictions may lead to more correlated behaviour.
73.
External data, which is one of the data sources of the GME, enables the IAIS to performbasic checks, for instance of the representativeness of the Insurer Pool and of the SWM
participants in terms of gross written premium.
74.
Macroeconomic surveillance indicators and data elements enable the IAIS to link
insurance markets developments with the general macroeconomic outlook of the global
economy.

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5

Feedback loop with IAIS Members and stakeholders

75.

The third step of the GME is the feedback loop with IAIS Members and stakeholders.

5.1

Feedback loop with IAIS Members

76.
Assessments from supervisors continue to be performed and used as information input
for the overall assessment. These supervisory assessments are performed notably for those
insurers that demonstrate a significant level and/or a trend of increasing potential (global)
systemic impact from their distress or disorderly failure.
77.
These assessments are partly based on targeted information from the relevantsupervisor, when relevant in coordination with other involved supervisors, on its assessmentof risk, any major developments post reporting date, as well as the supervisory response to
the build-up of potential systemic risk.
5.2

Roundtable discussions with external stakeholders

78.
The IAIS is committed to continue the dialogue with stakeholders on issues relevant tothe sector, including financial stability. To this end, the IAIS plans to have roundtablediscussions with relevant stakeholders such as Chief Risk Officers, investors and rating
agencies on sector developments to facilitate information exchanges and discussions.
79.
The roundtable discussions are intended to be held annually and encourage external
stakeholders to share their positions and sector insights.

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6IAIS collective discussion

80.

The fourth step in the GME process is the IAIS collective discussion.

81.
The collective discussion is a platform for IAIS Members to form a collective view on
the assessment of systemic risk in the global insurance sector, detect the build-up of systemic
risk, and discuss the appropriate supervisory response to systemic risk if it arises. Both the
SWM and IIM are key inputs into the IAIS assessment of systemic risk in the global insurance
sector and will feed into the collective discussion.
82.
The following subsections provide more details on the IIM and SWM inputs to thecollective discussion.
6.1

Criteria related to IIM

83.
The following criteria are used to assist the IAIS in the determination of the focus of
the IIM assessment, as one input to the collective discussion. The level criterion is aimed atindicating an actual threat to global financial stability, whereas the trend and outlier criteria are
more forward-looking in nature to indicate the build-up of potential systemic risks. Lastly, theuse of quantitative criteria is complemented by expert judgement, acknowledging the dynamic
nature of systemic risk.
Level
84.
The IAIS uses a predetermined level criterion based on the scores under the absolute
methodology to provide an indication of a situation in which potentially systemic activities or
exposures become concentrated in an individual insurer, such that its distress or disorderly
failure would pose a serious threat to global financial stability. This level of systemic risk isexpressed by an insurer’s total score.
Trends85.
Trend criteria are intended to identify and monitor significant score movements in one
or more indicators. This can be done by looking at total or indicator score increases.
86.
Trend criteria focus on significant year-on-year, or multi-year, percentage or basis point
increases in the total score of the absolute assessment methodology, or of at least a certain
number of indicators. What constitutes a “significant” increase may depend on circumstances,
but also on the total score itself. Therefore, it may be considered to use lower percentage
increases for insurers with a relatively high score and higher percentage increases for lower
scoring insurers.
Outliers
87.
Outlier criteria are aimed at monitoring how activities and exposures of individual
insurers develop compared to the Insurer Pool or the sector as a whole (based on the SWM).
For instance, significant movements of individual insurers’ total or indicator scores against theaggregate trend, or in excess of that trend, may trigger further exploration. Examples of outlier
criteria that are considered include certain absolute increases in a single indicator, orincreases that are at least a certain amount times higher than the median increase.
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Materiality criterion
88.
Both the trend and outlier criteria are used subject to a materiality criterion. This isintended to exclude insurers with a very low overall score or exposure, for which a small
absolute change results in a significant relative change due to the low starting level of anactivity, which does not necessarily warrant discussion at the IAIS level.
Expert judgement
89.
Finally, expert judgement is used to acknowledge that relevant developments may beoverlooked when only using a defined set of quantitative criteria, given the dynamic nature ofsystemic risk. Expert judgement may be more qualitative in nature, informed by major
business changes or outcomes of the SWM and cross-sectoral analysis. This may also relate
to a situation in which an insurer approaches the level criterion but has not yet breached it.
6.2

Sector-wide monitoring

90.
Another key input to the collective discussion is the outcome of the SWM byhighlighting the potential build-up of systemic risk stemming from activities or exposures froma sector-wide perspective, as well as by putting the outcomes of the IIM into a broader context.
91.

The assessment includes at least:





6.3

Quantitative assessment of sectors and activities that could pose a systemic risk;
Qualitative assessment of sectors and activities, based on the IAIS Members’ forwardlooking assessment of key insurance risk and trends within their jurisdictions;Trend analysis, which monitors evolutions of the risk indicators over time; andInterplays with the IIM.
Content of the collective discussion

92.
The collective discussion includes a forward-looking exploration of the assessment ofsystemic risk in the global insurance sector, both from the sector-wide and individual insurer
perspective.
93.
This includes a discussion on any identified significant growth in certain markets oractivities, or of a specific insurer (or insurers) that shows significant increases orconcentrations in activities and exposures. IAIS Members and relevant supervisors will be
asked to share their findings on the trends or levels identified within their jurisdiction or at thelevel of individual insurers with a focus on potentially systemic activities, how they assess thepotential systemic risk, and on the supervisory response to address the build-up of potential
systemic risk, including supervisory policy measures (enhanced supervisory policy measures
and/or powers of intervention) already applied or under consideration. This discussion will besupported by the outcomes of the IAIS’ assessment of the implementation of the holistic
framework supervisory material.
94.
Should there be a situation in which potentially systemic activities or exposures
become concentrated in an individual insurer such that its distress or disorderly failure would
pose a serious threat to global financial stability, then the discussion would become more
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intensive. As outlined in Chapter 6.1, this may be indicated by an insurer approaching or
breaching the level criterion. The focus of the discussion is not necessarily on exploring andassessing potential risks, but more so on discussing supervisory responses to address theidentified risk.
6.4

Outcome of the collective discussions

95.

The outcome of the discussion can be twofold:

A common IAIS view on the assessment of current and potential future systemic riskin the global insurance sector. Where applicable, this may highlight certain identified
risks, which could be at the level of a certain activity, exposure, region or individual
insurer.
Any recommendations for follow-up, which may entail:oooRecommendations for further analysis at the level of the IAIS, which can beboth qualitative and quantitative in nature, to better understand certain
identified trends, which can include ad-hoc data collections or a deep dive intoa certain identified risk. Outcomes of this analysis may then be sharedexternally for instance via a topical chapter in the next edition of the (enhanced)
GIMAR;
Recommendations for developing targeted supervisory or supporting material
to help supervisors address specific activities or exposures, or possible
additional supervisory capacity building or information sharing fora to sharelessons on effective supervisory practices; and/or
Considerations on the application of certain enhanced policy measures or
powers of intervention to a specific insurer, while recognising that theapplication of supervisory policy measures and intervention is ultimately the
responsibility of the relevant supervisor.

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7

Reporting96.
The fifth and final step in the GME process is the reporting to internal and external
stakeholders.
97.
The IAIS continues to be committed to enhancing transparency and will therefore
continue to provide disclosures to the general public, insurers participating in the IIM andjurisdictions participating in the SWM.
7.1

Reporting to participating insurers

98.
Following the finalisation of each annual exercise, the IAIS makes an insurer specificreport for each participating insurer in the IIM including the following elements:
7.2

The insurer’s score on each of the quantitative indicators; andFor each quantitative indicator, descriptive statistics including the median scores,
standard deviation, and quartiles of the scores distribution.
Reporting to IAIS Members

99.
The outcome of the GME can be a valuable input to the entire IAIS Membership andwill therefore not only be shared with the Members that participated in the IIM and/or SWM,
but with all IAIS Members.
100. The IAIS aims to provide group-wide supervisors with insight into how the individual
insurers’ risk scores relate to the Insurer Pool score. Descriptive statistics, including themedian scores and the distribution of scores within the Insurer Pool, could be shared.
101. In addition to IIM, the supervisor would get insight into how key risks and trends in theirjurisdiction(s) compare to global insurance sector.
7.3

Reporting to FSB

102. The reporting to the FSB will help provide an insurance sector perspective for the
FSB’s broader, cross-sectoral assessment of global financial stability. In the initial years of
implementation, the reporting is also aimed at providing sufficient information for the FSB toperform its review by 2022 on the effectiveness of the holistic framework in general, and the
GME in particular. To this end, the IAIS has previously agreed with the FSB to provide anannual report on the assessment of systemic risk and the supervisory response. Following
completion of each annual GME, the IAIS will prepare a report to the FSB summarising theresults of the GME, including the outcomes of both the IIM and SWM, and the IAIS’ collective
discussion on the outcomes and appropriate supervisory responses.
103.

The annual confidential report to the FSB will contain at least the following elements:

Individual insurer monitoring
104. Information will be provided at an Insurer Pool and individual insurer level. This will
include at least the outcomes of:

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Rankings and scores of individual insurers within the Insurer Pool, calculated basedon the updated absolute and relative indicator-based methodology;
Cross-sectoral analysis, comparing the systemic footprint of individual insurers and theInsurer Pool with that of banks;
Trend developments within the Insurer Pool;
Application of the criteria for a collective discussion; andQualitative assessments where applicable.

Sector-wide monitoring:105. Information will be provided at a global, regional and jurisdictional level, aimed atassessing potential systemic risk arising from sector-wide trends with regard to specificactivities and exposures. This would include at least the outcomes of:Quantitative assessment of exposures and activities that could pose a systemic risk,
including assessment of systemic exposures and transmission channels;
Qualitative assessment of sectors and activities, based on the IAIS Members’ forwardlooking assessment of key insurance risk and trends within their jurisdictions;Trend analysis, aimed at monitoring the evolution of the risk indicators over time; andInterplays with the individual insurer monitoring, including highlighting any
developments counter to the aggregate trend or in excess of that trend.

Collective discussion:
106.





7.4

Information to be provided on collective discussions include:
Outcomes of the discussion on the assessment of current and potential future systemicrisk in the global insurance sector, at an individual insurer and sector-wide level;
Outcomes of the discussion on the regulatory and supervisory treatment of these risks,
including on the supervisory policy measures already applied at an individual insurer
and/or sector-wide level, as well as any additional measures under consideration,
taking into account the outcomes of the IAIS’ assessment of implementation of theholistic framework at a jurisdictional level; andAny agreed recommendations as a result of the collective discussion, which may
include follow-up analysis by the IAIS, the development of supervisory or supporting
material by the IAIS, or considerations on the application of certain enhanced policy
measures and/or powers of intervention to a specific insurer, while recognising that theapplication of supervisory policy measures and intervention is ultimately the
responsibility of the relevant supervisor.
Reporting to the public107. Public reporting will contain both a general description of developments in the global
insurance sector and the outcomes of the GME as a whole (ie the IAIS assessment of systemicrisk in the global insurance sector). The report will provide information on trends, outliers,
activities and potential discussions on observations, but without any information on the identityof individual insurers.
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108.





109.






The section on the outcomes of the IIM will at least include information on:8
The aggregate totals for each indicator;
Formulas used for calculation of indicator scores;
The absolute reference values used for the indicators;
The data template and instructions used in that year’s assessment process; andAn analysis of aggregate trends in the Insurer Pool
The section on the outcomes of the SWM will at least include:
Trends and developments in the global insurance market from a macroprudential
supervisory perspective, focusing on the recent performance of the sector as well as
key risks faced by it;
Trends and developments in the broader financial system and real economy, to provide
additional nuance on the assessment of systemic risk by understanding theenvironment in which insurers operate and by providing insights to possible risks
building up outside the insurance sector that may ultimately impact insurers; andAny findings on the possible build-up of systemic risk in certain markets or activities at
a global insurance sector level.

8The disclosures on the IIM data collection are similar to those that were in place for the G-SII datacollection exercise.
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Annex: Detailed explanation of changes to IIM risk indicators
110. In order to improve the responsiveness of the indicators and the consistency with thebanking methodology, the following changes to the 2016 Methodology have been made:Indicator

Intrafinancial
assets (IFA)

Intrafinancial
liabilities (IFL)

Derivatives

Level 3 assets

Non-policy
holder liabilities
and noninsurance
revenues

Description of change
Capturing some previously excluded risks and improvement ofcross-sectoral consistency through inclusion of the current
exposure and potential future exposure of OTC derivatives with net
positive fair value, securities financing transactions (SFTs) with a net
positive current exposure and any deposits with unaffiliated financial
counterparties; and improved clarity on the exclusion of central banks
and other public-sector bodies.
Include reinsurance assets as an item within IFA, which replaces
the reinsurance indicator, is considered to better capture potential
intrafinancial exposures between primary insurers and reinsurers.
Capturing some previously excluded risks and improvement ofcross-sectoral consistency through inclusion of the current
exposure and potential future exposure of OTC derivatives with a net
negative fair value, SFTs with a net negative current exposure and theundrawn portion of committed credit lines and improved clarity on the
exclusion of central banks and other public sectors bodies.
Include reinsurance liabilities as an item within IFL, which replaces
the reinsurance indicator, is considered to better capture potential
intrafinancial exposures between primary insurers and reinsurers.
Limit the derivatives indicator to OTC derivatives, because they
are generally considered to be more complex when compared toderivatives traded on an exchange and this improves cross sectoralconsistency.
Drop the Level 3 ratio sub-indicator. To-date, the indicator has
been composed of two sub-indicators, namely, (i) absolute value ofLevel 3 assets, less physical holdings of real estates; and (ii) the ratioof those Level 3 assets to total assets measured at fair value on arecurring basis. This ratio sub-indicator has been intended to provide
an indication of the likelihood of an insurer being forced to sell Level
3 assets, but has not indicated the scale of those sales, andtherefore, has not signalled a measure of the potential systemic
impact.
Drop the indicator. Experience in recent years has shown a numberof areas where the indicator could lead to unintended results. Also,
further analysis of the elements captured, as requested in the 2018
data collection, revealed that most of the non-policy holder liabilities
are either not systemically risky or captured by other indicators,

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leaving only a small residual of not yet covered elements that will,
where appropriate, be monitored going forward.
Rescale the weighting between STF and LL. Given the large
difference in the values reported, the same reported value in the STF
indicator implicitly receives a much higher weight than in the LL
indicator. Rescaling the weightings by the share of combined
Short term
exposure is a way to address this.
funding (STF)
Include potential future exposure (i.e. the maximum amount ofand Liability
credit exposure that is expected over a given horizon and at a given
Liquidity (LL)
confidence level) of derivatives, to indicate the variation margin orcollateral that the firm would have to post if markets were to moveagainst its derivatives positions. Lastly, it is proposed to exclude fromthe STF the collateral that is contractually explicitly prohibited fromthe re-hypothecation or reuse.
Drop the indicator. Experience in recent years shows a number ofareas where the indicator could lead to unintended results. For
Turnoverinstance, the indicator did not distinguish between maturing
investments and sales.
Table 4. Summary of changes to indicators
111. The changes to the indicators impacted the weighting. Based on the following
principles, the IAIS allocates an equal 9.4% weight to all the indicators in the (sub)categories
in which there have been changes, in line with the following:






the total weighting should add up to 100%;
it is not desirable to significantly change the underlying weighting scheme between the
categories compared to 2016 Methodology;
the categories of size, global activity and substitutability should continue to have 5%
weighting each, leaving 85% of the total weight to the interconnectedness and asset
liquidation categories; andwhen merging two indicators, the impact on the weighting is assumed to be as if oneof the two indicators were dropped.

112. It should be noted that while there may be a clear rationale for giving a considerably
higher weight to the interconnectedness and asset liquidation categories, the exact weights
chosen are a matter of judgment. Having equal weights across the relevant indicators avoids
a judgment on the relative importance of each indicator in the absence of a scientificunderpinning.

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