IAIS’ Proposed Insurance Capital Standard:

an Update to the

Federal Advisory Committee on Insurance

Tom Finnell

Federal Insurance Office (FIO)

January 5, 2017
Office of Domestic Finance

 June 2013: the Financial Stability Board called on the IAIS to 

develop a comprehensive, group-wide supervisory and regulatory 

framework for Internationally Active Insurance Groups (IAIGs), 

including a quantitative capital standard.

 The IAIS determined that the Common Framework for the 

Supervision of IAIGs (ComFrame), by then already a work-inprogress, would become the basis for that framework, and that the 

quantitative capital standard proposed to be part of ComFrame

would become the ICS. 

 Latter half of 2013: ICS development efforts began.

 2014: Field testing focused on valuation and the Basic Capital 

Requirement (BCR, applicable to GSIIs, published late 2014).

 2015: Field testing included market adjusted valuation (MAV) as well 

as GAAP with Adjustments (GAAP Plus) valuation bases; tested 

High Loss Absorbency for GSIIs (published late 2015). 

The Proposed Insurance Capital Standard (ICS) -

Background
Office of Domestic Finance

 Spring – drafting of current year field test specifications; beta testing 

with Volunteer IAIGs; publication to Volunteer IAIGs (and IAIS website)

 Through mid-summer – Volunteer IAIGs prepare submissions; engage 

in Q&A process with the Capital Solvency and Field Testing Working 

Group (CSFWG); and submit data (may be in two phases)

 Late summer/fall – CSFWG data analysis teams at work in Basel

• Data “scrubbing” focuses on accuracy/quality of the data submitted

• Questions and follow-up with Volunteer IAIGs

• Volunteer IAIGs make corrections and re-submit data

• Analyses of results by various CSFWG workstreams

 Winter: CSFWG debate results; findings and recommendations 

reported to the Financial Stability and Technical Committee (FSTC)

 Entire process covered by confidentiality protections; only anonymized 

and aggregated data leaves the Basel data room 

 Number of Volunteer IAIGs increasing each year; now over 40

ICS Field Testing Process – an Annual Cycle
Office of Domestic Finance

 Second public consultation process

 MAV: collect data on three reference methods and three options for 

discounting

 GAAP Plus: expand coverage to additional jurisdictions; evaluate 

capital requirements for all risk categories; test “AOCI adjustment” to 

better align valuation of assets and liabilities

 Capital resources: expand tests of revised qualifying criteria, 

including collection of additional data to evaluate merits of qualifying 

Senior Debt

 Capital Requirements: specifications evolved for all risk categories; 

tested relative to both MAV and GAAP Plus

 A number of options tested throughout the ICS (e.g., for margins 

over current estimate, or “MOCE”; morbidity risk, etc.)

Focus of ICS Development Efforts in 2016
Office of Domestic Finance

 CSFWG reporting to FSTC in stages; current stage involves valuation 

and capital resources

 MAV: testing was inconclusive; no clear “winner” of 3 options tested

 Three other discounting options will be recommended to FSTC for 

2017 field testing 

- “Blended option” for MAV, a mix of two of the options from 2016

- “Own Assets with Guardrails Approach” put forward by some IAIGs

- High quality investment portfolio approach, to evaluate potential way 

forward for convergence of MAV and GAAP Plus

 GAAP Plus:

- Results show need for more comparability across jurisdictions, and 

with MAV

- For 2017, incremental technical improvements sought

- However, pending developments in accounting standards at the 

FASB and the IASB may necessitate broader changes, more likely 

for the 2018 field testing exercise, but still a possibility for 2017

Insights from the 2016 Field Testing Exercise, and 

Recommendations for 2017
Office of Domestic Finance

 Capital Resources: key decision points pending: 

- Senior Debt as Tier 2 capital 

- Surplus notes as Tier 1 capital for mutuals

- Prior supervisory approval of discretionary repurchases of Tier 1 

capital (i.e., treasury stock, and implications as to the qualification of 

common stock as capital, either Tier 1 or Tier 2)

- Non-paid-in capital

 MAV, GAAP Plus and Capital Resources papers and 

recommendations going forward to FSTC for its meeting on January 17

• FIO, Federal Reserve, and NAIC members of the CSFWG 

coordinated on joint submissions

 Subsequent decision point stages will relate primarily to capital 

requirements, e.g., for interest rate risk, currency risk, etc. 

Culmination: feedback from FSTC to CSFWG for the design of the 

2017 Field Test specifications 

Insights from the 2016 Field Testing Exercise, and 

Recommendations for 2017 (cont’d)
Office of Domestic Finance

 “Version 1.0”

 “Confidential Reporting” 

 Inclusion of all potential IAIGs? 

2017 Field Testing
Office of Domestic Finance

 IAIS work plan calls for adoption of the ICS by late 2019

 Adoption by the IAIS would be as an international standard; 

however, the ICS would not be self-executing as implementation is 

the responsibility of appropriate authorities in each jurisdiction

Going Forward