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26 June 2014News

ABIR: Global capital standard plans are misguided

Plans by the International Association of Insurance Supervisors (IAIS) prompted by the Financial Stability Board (FSB) to develop a global insurance capital standard could be misguided and risk creating a costly and potentially contradictory level of regulation for the insurance industry.

That is the view of Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), speaking at this year’s International Insurance Society’s conference, held in London this week.

He is critical of the proposed measures for being untested, being set at a target capital level instead of a minimum regulatory level and unclear in what they will ultimately achieve. He also fears the influence of the FSB could lead to a capital standard for insurers that is inappropriate to the requirements of the insurance industry.

“Firstly, the timeline to implementation is far too tight. Solvency II took ten years of testing; Basel III took 10 years of testing. Yet the timeline on this is less than half.” he says. Under the current plans, the requirements could be in place by 2019.

He continues: “Secondly, what is the purpose of it? While there is some value in creating transparency around group capital structures and intra-group guidelines, it will also set a minimum capital standard that would sit alongside existing jurisdictional rules as well as new regulations such as Solvency II.”

He says the chief executives of insurers and reinsurers are unhappy with the proposals believing they will create an inappropriate excessive banking oriented capital standard.

He believes if the proposals must go ahead, they should instead create minimum capital requirements that allow existing compatible jurisdictional standards to continue to apply. Over time, this could then evolve into something that could be used globally and could be helpful to regulators rather than imposing strict requirements on a global basis now.

“The bottom line is that this represents yet another layer of extra regulation that will increase consumer insurance costs and which could potentially contradict existing requirements.” he says.

The IAIS has previously said that its plans will be included as part of its common framework for the supervision of internationally active insurance groups (ComFrame). The IAIS claims that ComFrame had always included a capital module within its solvency assessment, and that the ICS would evolve out of this.