Toward global standards for group supervision

January 2014

“Lack of coordination among supervisors is a main risk to effective supervision. As supervision of the group becomes more intense, with new standards and responsibilities, supervisors have to improve coordination. They have to delegate and understand each other. There are political reasons why this is hard, but it must be done.”

—Insurance sector policymaker 

The global financial crisis marked a significant change in the focus of financial-sector regulation. For the largest insurers, regulation has expanded beyond pure policyholder protection and, by extension, the solvency of individual companies, to promoting and protecting global financial stability. Regulators are also examining potential future risks in addition to historic risks or performance issues, with one supervisor noting, “I challenge the aphorism that ‘if it is not broken, don’t fix it.’  We hear that all the time. You need to start early. You need time to work things out. When did Solvency II start? I am thankful it started early.”

This shift in philosophy is at the heart of an important tension between supervisors and insurers. With respect to new regulations, several insurers echoed one director who asked, “What is the problem we are trying to solve? Have we had too many failures [of large insurers], or not enough?”  While few insurers failed in the crisis, policymakers and supervisors note that this sort of comment does not acknowledge the broader financial stability argument underpinning the development of new regulations. One supervisor 
said, “I don’t want to puncture your optimism, but there is a lot of ‘insurance had a good war, didn’t we?’ Yes, but if we hadn’t supported bank bonds, what would have happened to your portfolio? Without massive public policy intervention, there would have been a problem … Supervisors will expect increased resilience. We’d want to understand how good you’d be in another crisis without intervention.”

To enhance stability, supervisors need a truly global view of firms’ activities. This demands much greater coordination within the insurance group, as well as by the dozens of supervisors that oversee the various parts of the largest insurers. Since the creation of the Insurance Governance Leadership Network (IGLN) in 2012, participants have expressed a sustained interest in the challenges and opportunities presented by the new focus on group supervision. On October 23, 2013, in London and November 14, 2013, in New York, IGLN participants convened to discuss the future of group supervision and the new regulatory developments that both require and encourage better group supervision. Industry awareness of such developments as ComFrame,  global capital standards, recovery and resolution planning, and macroprudential supervision is uneven. One director noted, “We have a new risk on the risk list – ComFrame.”  Others indicated their firms are aware of the debate over standards, but are unsure of the impact the new standards will have on them.

Sixteen board members and executives of leading global insurers met in conversation with 11 members of the policy and supervisory community. The meetings focused on five broad themes, which are described in more detail in this issue of ViewPoints

  • Regulation of complex insurers has fundamentally changed following the crisis

  • Development of the first global insurance capital standards presents challenges and opportunities

  • Recovery and resolution planning will test insurers, but could have important benefits

  • Macroprudential supervision is not yet well defined or understood

  • Effective supervisory coordination is more important than ever