Featured Product

    IAIS Sets Out Recommendations for Benchmark Transition for Insurers

    July 09, 2020

    IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective. The report shares findings and recommendations from a survey conducted among IAIS members. The report highlights that continued reliance of financial markets on LIBOR poses clear risks to global financial stability. Transition away from LIBOR by the end of 2021 requires significant commitment and sustained effort from both financial and non-financial institutions across many jurisdictions. IAIS encourages insurance supervisors to strengthen their efforts in facilitating the insurers’ transition away from LIBOR.

    The key findings and recommendations identified from the survey responses are largely consistent with those of the FSB-BCBS report on supervisory issues associated with benchmark transition, albeit with a few points specific to the insurance sector. The issues that are specific to the insurance sector arise because insurers are exposed to transition risks on both sides of the balance sheet. The survey results highlight that, overall, insurer exposures to LIBOR are limited, but might be more concentrated in certain insurers, depending on their geographical location, balance sheet structure, business model, products, and size. Approximately half of the responding jurisdictions indicated that there is no material exposure to LIBOR in their insurance markets and hence did not report to have a transition strategy in place. Other jurisdictions are still in the process of executing a work plan to analyze the LIBOR exposures.

    From a micro-prudential perspective, similar to the findings from the FSB-BCBS survey, transition risks may arise from the operational, legal, prudential, conduct, hedging, and accounting perspectives. Similar to non-insurance supervisors, most insurance supervisors have not set targets and deadlines for insurers to transition from LIBOR to alternative reference rates. Authorities in LIBOR currency jurisdictions are relatively more advanced in taking initiatives to facilitate and monitor benchmark transition. Similar to the FSB-BCBS survey, based on the responses received, IAIS has identified a number of recommendations adopted by authorities to address LIBOR transition challenges. Some of these recommendations have been already adopted by authorities that have progressed more toward LIBOR transition. A wider implementation of these recommendations by jurisdictions could facilitate a more effective and coordinated transition globally. The report includes three sets of recommendations:

    • Identification of LIBOR exposures and transition challenges—Insurance supervisors are recommended to closely monitor LIBOR transition and actively reach out to the sector based on a risk-based approach. Insurance supervisors should issue public statements to promote awareness of LIBOR cessation and associated risks. Supervisory authorities should evaluate the need and then undertake regular surveys to monitor financial institutions’ (including insurers) exposure to LIBOR and to identify possible areas of risk concentration. Insurance supervisors are recommended to request, as part of the insurer risk management and reporting, a board-level summary of key risks and action plans related to LIBOR transition, steps already taken, and designated senior management responsible for transition. 
    • Transition facilitation—Insurance supervisors should maintain regular dialog with insurers to discuss the transition plans, the progress against set timelines or milestones, and the readiness of internal and external systems. Insurance supervisors should provide further regulatory clarifications or supervisory guidance to facilitate the transition.
    • Supervisory cooperation and coordination—Insurance supervisors are recommended to promote financial sector-wide coordination, maintain dialog on the adoption of fallback language, consider working with relevant financial sector supervisors to identify legislative solutions where necessary, and exchange information on best practices and challenges as well as on progress across jurisdictions. International bodies, standard-setting bodies, and supervisory authorities encourage financial institutions, including insurers, to maintain a good understanding of wider market developments.

    IAIS and its members are committed to supporting the next steps proposed by BCBS and FSB in further assessing transition progress and monitoring the evolving impact of the COVID-19 pandemic on benchmark transition.

     

    Keywords: International, Insurance, Securities, Interest Rate Benchmark, LIBOR, Risk-Free Rates, IBOR Transition, OTC Derivatives, BCBS, FSB, IAIS

    Related Articles
    News

    PRA Consults on Implementation of Certain Provisions of CRD5

    PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).

    July 31, 2020 WebPage Regulatory News
    News

    EIOPA Report Identifies Key Financial Stability Risks for Insurers

    EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.

    July 30, 2020 WebPage Regulatory News
    News

    EBA Publishes Risk Dashboard for First Quarter of 2020

    EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.

    July 30, 2020 WebPage Regulatory News
    News

    EBA Issues Updates on Stress Test Exercise for Banks in EU

    EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.

    July 30, 2020 WebPage Regulatory News
    News

    PRA Proposes Guidance Related to Matching Adjustment under Solvency II

    PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.

    July 30, 2020 WebPage Regulatory News
    News

    MAS Issues Guidance on Dividend Distributions by Banks

    MAS published a statement guidance on dividend distribution by banks.

    July 30, 2020 WebPage Regulatory News
    News

    APRA Updates Guidance on Capital Management for Banks

    APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.

    July 29, 2020 WebPage Regulatory News
    News

    FSB Report Reviews Macro-Prudential Framework and Tools in Germany

    FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.

    July 29, 2020 WebPage Regulatory News
    News

    EBA Urges Firms to Finalize Preparations for End of Brexit Transition

    EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.

    July 29, 2020 WebPage Regulatory News
    News

    SRB on Operational Continuity in Resolution and FMI Contingency Plans

    SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.

    July 29, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5606