2016 – IAIS – Risk-based Global Insurance Capital Standard Version 1.0

  • 2016 0710 – IAIS – Risk-based Global Insurance Capital Standard, Version 1.0 – Public Consultation Document – Comments due by 19 October 2016 – 175p
    • 4.1 Market adjusted valuation (MAV) approach – Comments – 276p
    • 5 Capital resources – 149p
    • 6.5 Management actions – Comments – 18p
    • 6.8 Lapse Risk – Comments – 34p
    • Comments
      • 2016 1019 – AAA – 12p
      • 2016 1019 – EIOPA – 28p
      • 2016 1019 – GFIA – 58p
      • 2016 1018 – IIF / Geneva Association – Comments – IAIS – Risk-based Global Insurance Capital Standard, Version 1.0 – 12p
  • 4.1 Market adjusted valuation (MAV) approach
  • Q20 Section 4.1.4.4 – Which approach to portfolio selection, as a basis for the calculation of the credit spread adjustment, is more appropriate for the MAV approach, taking into account the need to ensure a balance between complexity, comparability and basis risk? Please explain.
  • (p126) – NAIC – National Association of Insurance Commissioners
    • At least when writing longer term business such as life insurance, it is desirable for assets and liabilities to match.
      • Since the liabilities should be addressed on the individual insurer’s portfolio (see our response to Q21), we would like to see a parallel approach to the ICS portfolio selection (i.e. spreads calculated by firms based on actual asset returns or a weighted average of multiple reference portfolios linked to the assets held by the firm).
  • (p165) – NAIC – Policyholder protection is enhanced when entities aspire, do and demonstrate
    matching of assets to their liabilities. See also our response to Q21.1. 
  • Q23 Section 4.1.4.4 Should insurance liabilities be segregated into buckets for the purpose of applying the credit spread adjustment?
  • Q23.1 Section 4.1.4.4 If “yes” to Q23, which criteria are appropriate to allocate liabilities to the different buckets?
  • 6.5 Management actions – 18p
  • 101 Section 6.5.3.1 Are there examples of other instances for which an extension of management actions to allow for the recognition of premium adjustments may be appropriate? Please explain.
  • NAIC – National Association of Insurance Commissioners
    • Management actions should only be recognized in limited circumstances where there is a written documented plan which has been shown to have been used in the past.
    • In such circumstances we agree that adjustments to amounts credited to policyholders such as reductions as a result of increased cost of insurance charges (for example for universal life plans) may be taken into consideration.
    • The reason that management actions should be able to withstand a “use” test is that caution should be used in circumstances where companies may be subject to reputational risk.
  • ACLI
    • ACLI believes that rate actions such as COI increases should be allowed.
    • We understand that rate actions might precipitate other policyholder actions such as increased lapses and possibly reputational risk.
    • Such policyholder behavior sensitivity could be captured by reasonable dynamic lapse assumptions.
  • 6.8 Lapse Risk – 34p
  • (23-24) – NAIC – National Association of Insurance Commissioners
    • The experience during the Global Financial Crisis (GFC) and at other times appears to suggest that mass lapse bank-like runs on insurers, are rare, and did not occur in the GFC.
    • Such events are less likely to be significantly related to product features than to psychological, economical and stay driven features.
    • For instance, if there is a general loss of confidence in the insurance market, in a particular insurer, or a severe need for cash, policyholders may flee regardless of their surrender strain position.
  • (p24) – While reputation risk can be a highly likely trigger for mass surrenders, it is not linked to product features.
    • InsuranceEurope
  • (p24) – An application only to those policies which are adversely affected would not be appropriate. A mass lapse event may be triggered in particular by bad news / rumours in mass media / social media.
    • GDV – Gesamtverband der Deutschen Versicherungswirtschaft – Germany
  • (p26) – Mass lapses represent a reputational risk or “run on the bank” risk, not economic decision-making by policyholders.
    • MetLife (p26)
  • (p27) – When a mass lapse occurs, policyholder behavior is NOT likely to consider whether it will harm the company or not.
    • MassMutual
  • (p30) – When confidence is lost, policyholders will leave the company regardless of their surrender strain position.
    • American Academy of Actuaries
  • Section 6.8 Lapse Risk – 2016 1019 – AAA – Comments – 1.0 – 12p
    • Question 130: Should the mass lapse stress be applied only to surrenderable policies with positive surrender strain? Please explain.
    • Response: No. When confidence is lost, policyholders will leave the company regardless of their surrender strain position.
      • Furthermore, policyholders may not fully realize their current surrender strain position.
  • 6.8 Lapse Risk – Comments – 34p(
    • (p7) – Q124 Section 6.8.2 Is the stress level for Mass Lapse risk appropriate? Please explain. If “no”, please provide supporting evidence and rationale for a different stress level.
    • (p9) – ICS shocks are 30% for retail and 50% for non-retail.
    • These shocks seem appropriate for a stress test
      • International Actuarial Association (IAA)