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To: Federal Advisory Committee on Insurance (FACI)

From: FACI Subcommittee on FIO’s international work

Re: Recommendations re. FIO’s international work

Date: Thursday, December 5th, 2019

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Recommendations below are supported by the following members of the Subcommittee on FIO’s 

international work: AIG, Aon, Athene, Liberty Mutual, and Oregon Division of Financial Regulation. 

Center for Economic Justice supports the ICS recommendations, but not the extensive commentary.

Recommendations to FIO re. Insurance Capital Standard (ICS): 

Background: “Team USA” delivers IAIS outcome consistent with FACI recommendations

The outcome of the recent International Association of Insurance Supervisors (IAIS) annual conference 

in Abu Dhabi aligns well with the recommendations that FACI provided to FIO at its September meeting. 

Collaboration across “Team USA” has been instrumental to delivering an IAIS outcome on ICS version 2.0 

for the Monitoring Period and Comparability Assessment that, consistent with prior FACI 

recommendations, both: 

i. Establishes a viable pathway to international acceptance of Aggregation, including wellspecified IAIS public communications about the way forward, detailed work-plans and timelines, 

and realistic and achievable criteria for assessing Comparability.

ii. Provides a coherent design and candid framing of the Monitoring Period, including

mechanisms for further policy work, messaging to discourage the disclosure of ICS results (as 

well as to deter their use by third parties), and impact testing of the potential negative 

externalities of the ICS on product availability and pro-cyclicality.

To build on this outcome and maintain momentum as we enter the Monitoring Period, the FACI sets 

forth the following recommendations for FIO’s continued engagement at the IAIS.

ICS Recommendations

The outcome from Abu Dhabi demonstrably enhances the stature of Aggregation within the ICS process, 

while laying a solid foundation for further substantive work to demonstrate Comparability with ICS. In 

forging ahead on the next critical steps, we recommend that FIO:

• Help to drive forward the work needed to ensure timely execution on the milestones laid out in Abu 

Dhabi. Put simply, having secured a constructive outcome politically, we cannot afford to pause, 

and must work vigorously to shape the interim negotiations on Comparability during the Monitoring 

Period. The evolution from Comparability principles, to criteria, to an ultimate assessment will be a 

multi-faceted effort requiring our collective strategic, analytical, and political resources. We view 

the next several months (and years) as an opportunity to provide “breathing room” for the NAIC to 

finalize GCC, to promote education and outreach on Aggregation across interested regulators 

globally, and to build out a thoughtful consensus on Comparability. 
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• Continue its successful engagement model, comprising both: 

o active and coordinated collaboration across Team USA, with the goal of negotiating the 

more granular and technical elements necessary to fulfilling the IAIS commitment to a viable 

approach to Comparability. Beyond its efforts at the IAIS negotiating table, the FIO can add 

further value by supporting bilateral outreach to non-US policymakers on the merits and 

substance of the NAIC’s group capital calculation (GCC);

o frequent and transparent stakeholder engagement, with a view to soliciting feedback on the 

technical and political milestones that lie ahead on the pathway to Comparability. Notably, 

we see value in regular touchpoints with stakeholders to inform the development of the 

planned IAIS consultation on Comparability for publication next July. 

• Execute substantively on the outcome from Abu Dhabi, which we believe should include: 

o the integration of Aggregation into all relevant aspects of the ICS work plan during the 

Monitoring Period. For example, the proposed ICS economic impact study should also 

include Aggregation, which will help to demonstrate its relative stability and alignment with 

insurer ALM practices, relative to the volatility and pro-cyclicality inherent in a market-based 

construct such as the ICS. Inclusion in the study would also be a tangible marker of the 

rightful stature of Aggregation within the ICS process;

o a methodical, objective, and evidence-based clarification of the potential ambiguities 

inherent in the published IAIS Comparability definition and principles. It is understandable

that the initial published version of the Comparability principles are broadly defined and lack 

granular detail. However, as we work towards the planned July 2020 consultation on the 

Comparability assessment criteria, it will be important for FIO and Team USA to work 

towards agreed interpretations with their non-US counterparts at the IAIS. In particular, FIO 

can play a valuable role in supporting and promoting the NAIC’s published Interpretive 

Guidance, which provide useful context and clarification around the IAIS Comparability 

principles. Of course, the fact that this guidance was published separately by the NAIC, and 

not as part of a formal IAIS document, could indicate a need, in the coming months, to elicit 

further agreement across IAIS members on what the Comparability principles mean in 

practice. For example, while the Comparability assessment will largely reflect qualitative 

elements, we think there is a need for a deeper clarification of what the more quantitative 

elements might entail. We also believe that a more defined understanding of the 

expectations around supervisory intervention will be helpful, particularly as the NAIC 

completes its work on the GCC. Finally, we think that the Comparability assessment needs 

to be holistic in nature, and place the role of group regulatory capital within the broader

context of US state-lead group wide supervision, including, for example, liquidity stress 

testing, the ORSA, and state guaranty funds;
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o continued technical enhancements to the ICS, particularly with a view to aligning the ICS 

design more closely with US business models and capital management practices. We believe 

it is important that the ICS reflect US modalities for underwriting, risk and capital 

management, and ALM – not only to reduce the flaws in ICS, but also to ensure that 

Comparability is assessed relative to an ICS that is not fundamentally biased against the US 

insurance model and US market needs. We note that Team USA made notable strides in the 

design of ICS 2.0, including the recognition of senior debt within available capital, as well as 

the use of NAIC designations for credit risk. We recommend that FIO should work to both 

preserve these enhancements, and also fix outstanding flaws, such as elimination of the 

spread risk charge and promotion of a liability discounting approach that is more closely 

aligned with ALM; and

o reinforcement of the IAIS messaging that ICS ratio reporting (i) is non-mandatory and 

provisional in nature, (ii) must remain strictly confidential and should not be disclosed by 

individual insurers (even on a voluntary basis), and (iii) should not be used by third parties for 

assessing insurer financial strength during the Monitoring Period. 

FACI discussion re. IAIS Strategic Plan 2020-2024: 

Having now concluded important milestones on both ICS and the Holistic Framework, the IAIS is seeking 

to increasingly pivot from the post-crisis reform agenda, to a forward-looking emphasis on emerging 

issues, as laid out in its Strategic Plan published last June.

The IAIS Strategic plan identifies key themes for the 2020-2024 period:

• Technological Innovation

• Cyber Resilience

• Climate Risk

• Conduct and Culture

• Financial Inclusion and Sustainable Economic Development

Although the Subcommittee does not, at this stage, have specific recommendations for FIO on the 

Strategic Plan, we think it useful for the FACI to have a more fundamental conversation about the 

interplay of prudential tools (which by and large have been the focal point of the IAIS post-crisis reform 

agenda) with the wider and forward-looking public policy objectives underlying the Strategic Plan. To 

help forge recommendations for future FACI meetings, the FACI should at this stage have a deeper 

conversation about whether certain prudential requirements (eg, capital charges, governance) are 

appropriately related to prudential oversight, or compromise prudential oversight to achieve nonsolvency public policy objectives.