IAIS Consults on Principles for Assessment of Aggregation Method
IAIS is consulting on the draft definition of comparable outcomes and the high-level principles to inform the criteria that will be used to assess whether the Aggregation Method provides comparable outcomes to the Insurance Capital Standard (ICS). Following a consideration of the comments received on the draft definition and draft high-level principles, IAIS will develop the draft criteria that will be used to assess whether the Aggregation Method provides comparable outcomes to the ICS. More detailed criteria will be developed for each high-level principle and in such a manner that the Aggregation Method is neither precluded at the outset as an outcome equivalent approach to the ICS for measuring group capital, nor given a free pass. The consultation period on draft definition and high-level principles ends on January 22, 2021.
As defined in the consultation paper, "comparable outcomes to the ICS means that the Aggregation Method would produce similar, but not necessarily identical, results over time that trigger supervisory action on group capital adequacy grounds." Based on this definition, IAIS has developed the draft high-level principles to inform the criteria that will be used to assess whether the Aggregation Method provides comparable outcomes to the ICS. The overarching approach agreed to in November 2019 was used as a basis to develop the following six high-level principles:
- Aggregation Method and ICS results are significantly correlated in that they change similarly in response to the changing economic and financial market conditions over the business cycle, not short-term market fluctuations, although the quantum of change may differ.
- Individual elements of a group solvency approach—that is, valuation, capital resources, and capital requirement—will be analyzed; however, the decision on comparable outcomes will consider the elements in totality.
- Aggregation Method could be more but not less prudent than the ICS, which is being developed as a minimum standard.
- Aggregation Method and ICS use the same scope of the group, consistent with the scope set out in ComFrame.
- A representative sample of Volunteer Groups, covering a diversity of business models, provide both ICS and Aggregation Method data under various economic and financial market conditions over the business cycle.
- Aggregation Method and ICS are similarly transparent, in terms of facilitating understanding and comparability, within and across jurisdictions, of the group solvency position through public disclosure and reporting to group-wide supervisors.
In November 2017, IAIS had set out an agreement on the implementation of ICS Version 2.0, including a unified path to convergence of group capital standards in furtherance of its ultimate goal of a single ICS that achieves comparable outcomes across jurisdictions. The agreement acknowledges the development by the United States of the Aggregation Method to a group capital calculation. In November 2019, IAIS had agreed on a process and timeline for developing criteria to assess whether the Aggregation Method provides comparable outcomes to the ICS. IAIS agreed on a draft definition of comparable outcomes and an overarching approach to guide the development of high-level principles and criteria. Based on the draft definition and overarching approach, IAIS has developed the draft high-level principles to inform the criteria that will be used to assess whether the Aggregation Method provides comparable outcomes to the ICS. This consultation was previously scheduled for mid-2020, but due to the COVID-19 pandemic, IAIS has rescheduled the consultation to provide operational relief.
Comment Due Date: January 22, 2021
Keywords: International, Insurance, ICS, ComFrame, Aggregation Method, ICS Version 2, IAIS
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