Creating the first global insurance capital standards

Risk management and oversight, Regulation and supervision, Financial Strategy
/ Insurance and Asset Management

Insurance Governance Leadership Network, February 2015

"[A global capital standard] is critical because if we get this right, we can deal more effectively with issues of cross-border recognition, and more generally seek to simplify the capital regime. The prize is therefore big, and firms need to be involved with us in the work.”

—Andrew Bailey, deputy governor of the Bank of England and chief executive of the Prudential Regulation Authority

Discussions within the Insurance Governance Leadership Network (IGLN) have repeatedly returned to evolving approaches to regulation and supervision. Of special concern have been capital requirements, which continue to rise, and the concurrent challenging capital environment. The International Association of Insurance Supervisors (IAIS) is now developing the first-ever global capital standards for large insurance groups. In this context, IGLN participants continue to raise questions about the direction and purpose of capital regulation and whether there is a clear end goal for regulatory reform. One director asked, “Where are we going, exactly? What should the system look like, and are we appropriately balancing safety and soundness with growth?”

The new regulations may lead to significant adjustments to companies’ structures, strategies, and footprints. Industry watchers suggest the effects will be far reaching, creating challenges and opportunities not only for large global insurers, but for smaller insurers and non-traditional players as well. Most also agree that stakeholders should become involved in the conversation now, as those who do not engage in the global debate may forfeit the chance to influence it.

On December 9, 2014, insurance directors, executives, and regulators gathered to discuss the evolution of the first global capital standards for large insurers and the changing role for boards in overseeing capital. During these conversations, several key themes emerged. This ViewPoints centers on three of these themes:

  • The creation of global capital standards creates challenges and opportunities

  • Supervisors and insurers will have important issues to resolve after preliminary standards are set

  • Boards are revisiting how they oversee capital