2022 - IAIS - Public consultation on draft criteria that will be used to assess whether the Aggregation Method provides comparable outcomes to the Insurance Capital Standard

  • 2022 - IAIS -  Public consultation on draft criteria that will be used to assess whether the Aggregation Method provides comparable outcomes to the Insurance Capital Standard  ---  [BonkNote]  ---  [link]
    • Comments due by 15 August 2022 midnight CEST
    • Draft comparability criteria for public consultation - 10p
    • Explanatory note on the draft criteria for the Aggregation Method comparability consultation - 8p
    • Questions for draft comparability criteria - 4p
    • 2022 - IAIS - Panel: Insurance Capital Standard - [VIDEO-YouTube]
    • Comments
      1. 2022 0815 - AAE (Actuarial Association of Europe) - 7p
      2. GIAJ (General Insurance Association of Japan) - 5p
      3. 2022 0817 - Insurance Europe - 11p
      4. 2022 0815 - IAA (International Actuarial Association) - 5p
      5. 2022 0815 - NAMIC - 9p
        • NAMIC Highly Critical of IAIS’ Proposed Criteria for Evaluating the U.S. Approach to Group Capital - [link]
  • 2022 0817 - Insurance Europe - 11p
    • (p4) - The exclusion of short-term market fluctuations does not appear to make sense.
      • Analysis under scenarios with short-term fluctuations (for example of the type seen during the 2007-2013 financial crisis) seems in fact to be one of the key areas for comparison as it might lead to different triggers for supervisory action.
    • (p4) - Even when the direction of travel is the same, supervisory actions may be triggered at different points in time, and result in a lack of comparability.
      • Therefore, significant correlation should not be recognised if the timing of supervisory action is different.
      • The high-level principles and/or criteria should be updated to include the comparability of PCR breaches and supervisory triggers and to make clear that “the AM should trigger supervisory action no later than the ICS”.
    • (p6) - Criterion 1.3e): Comparing breaches of PCR and supervisor trigger points is fundamental for assessing comparability and the criteria need to reflect this.
      • This criterion goes some way towards addressing this, but a greater focus on comparing PCR breach points is necessary in this and/or other criteria. In particular the term “information to inform the analysis” is worrying because it implies that the comparison of PCR breaches and triggers for supervisor action is secondary.
      • It should be made clear that it will form a core and primary part of the assessment.
    • (p7) - 2.2 - The differences between the AM and ICS resulting from explicit risk charges should be broken down by major risk category (ie, market, credit, life, non-life, etc.) at the very least.
    • (p8) - 2.4 - The differences between the AM and ICS resulting from explicit risk charges should be broken down by major risk category (ie, market, credit, life, non-life, etc.) at the very least.
    • (p9) - 3.1 - The ultimate comparability test is whether the AM and the ICS would trigger the same supervisory actions at similar points in time.
      • It should be clarified in the criteria that the basis of assessment will include comparison of the PCR and the point in time at which the PCR would be breached under the AM and ICS.
      • It should also be clarified that the AM could be considered comparable if it triggers supervisory intervention at similar points in time or sooner, but not if it does so later than the ICS.
      • Therefore, in terms of assessing the AM as a potential alternative to the ICS, which leads to comparable outcomes, it could be more but not less prudent.
  • 2022 0815 - NAMIC - 9p
    • (p1) - Q1 Comment on criterion 1.1
      • The draft criteria for High Level Principle 1 are wholly vague and subject to not only wide application but also politicization and a starting point which tilts all wheels impermissibly against the AM, seemingly predetermining a failure of the comparison.
      • The terms “significantly correlated," “business cycle," and “short term market fluctuations are poorly defined and could be subject to many different interpretations.
      • Finally, the acknowledgement in the Explanatory Note that the task to design a
        comparability assessment is complex because “the ICS and the AM framework are
        methodologically and conceptually quite distinct" is well understood; however, given the limiting nature of terms like “significantly correlated" and differing starting points
        (Market-Adjusted Valuation vs. Statutory Accounting or GAAP+) we believe this
        complicates the exercise further and could open it up to continuing changes in
        interpretations, weakening the overall process.
      • Accordingly, NAMIC asserts that the framework and methodology is irrelevant when conducting a comparability evaluation.
        • What is important is whether the result is comparable as a regulatory tool, given jurisdictional differences.
      • The IAIS should eliminate this criterion because it narrows how comparability will be assessed and precludes the AM at the outset.
    • Q10 Comment on criterion 2.1
      • The U.S.-developed AM is a method that will achieve the goal of providing regulators with an understanding of group capital valuations and potential entities that are weak in a group. It is built off existing capital frameworks, has been around in some form for decades, and provides enhanced public/consumer protection as compared to non-U.S. systems.
      • In the U.S., there are provisions included in state law like prior-notice-of-transaction or (dis)approval of dividends that ensure that companies are not pulling money out of one legal entity to the benefit of another.
      • Even after a company has been declared insolvent the needs of the insurance
        policyholders are top-of-mind for regulators.

        • In the U.S. the state guaranty funds provide basic coverage to policyholders if their insurance company goes insolvent, and companies writing insurance in each state are assessed for the claims payment of those policyholders.
      • The Supervisory College can also help supervisors understand intra-group risk.
        • In addition to supervisory college reviews, annual enterprise risk reporting (Own Risk and Solvency Assessment and Enterprise Risk Reports), regular comprehensive financial examinations, annual independent audits, market conduct examinations, disclosures of corporate governance, investment limitations, and regular financial analysis of capital trend tests, risk profiles, and other material risks to the group are all legal requirements other than capital that address concerns about the solvency of insurance groups.
          • The U.S. approach to insurance company supervision has always been focused on the individual legal entities.
          • Because it is insurance legal entities that write insurance contracts, U.S. regulators – for the protection of policyholders – require capital to be held by the company that is writing the insurance policy.
          • This approach has stood the test of time and proven itself time and
            again.
    • Q12 Comment on criterion 2.3 - All of it
    • Q13 Comment on criterion 2.4
    • the U.S. has always believed that the capital must be held at the level of the company that is writing the insurance policy.
    • U.S. state insurance regulators are highly focused both on solvency and market regulation.
      • They must balance the two to ensure the insurance industry they regulate continues to be strong, secure, and stable while delivering the products and services to consumers in compliance with the laws.
  • 2022 06 - IAIS - Draft comparability criteria for public consultation - 10p
  • Public Consultation on the draft criteria that will be used to assess whether the Aggregation Method provides comparable outcomes to the Insurance Capital Standard
    • (p6) - HLP1 - For life business, the scenarios include changes to equity values, interest rates, credit spreads, mortality rates and lapse rates.
    • (p7) - HLP2
      • Individual elements of a group solvency approach, ie valuation, capital resources and capital requirement, will be analysed; however, the decision on comparable outcomes will consider the elements in totality.
      • The overall AM capital requirement and ICS capital requirement provide a similar level of solvency protection.
      • The overall quality and eligibility of capital resources allowed in the AM is similar to the ICS and is assessed considering the same five key principles identified for ICS capital resources: loss-absorbing capacity, level of subordination, availability to absorb losses, permanence and absence of encumbrances and mandatory servicing costs.

      • 2.1 - When carrying out the analysis of individual elements of a group solvency approach, ie valuation, capital resources and capital requirement, prudence in one element may be used to offset less prudence in another element. The analysis should consider interaction between valuation (eg insurance liabilities), capital resources and capital requirement. 

      • 2.2 - prudence embedded in valuation (ie accounting conservatism)

    • (p8) - HLP3
      • 3.1 - The AM triggers supervisory action on group capital adequacy grounds5 under similar conditions over the business cycle as the ICS showing that the level of solvency protection in totality could be more but not less prudent than the ICS.
  • 2008 0913 - Financial Crisis Inquiry Commission (FCIC) - FRBNY Email Mahoney and Mosser re AIG Update - SB-AIG-35651 - 1p
    • *He also noted negative consequences in insurance markets in general if AIG goes down (ie cost of insurance is likely be much higher if they file) and negative consequences in muni bond market if GICs default so regulatory forbearance can be justified politically.
    • *Eric Dinallo - New York State Superintendent of Insurance - January 2007 through July 2009
  • --  Senator Jake Garn  (R-Utah)
    • (p2) - The failures of Executive Life, First Capital and Fidelity Bankers last year have raised concerns about the financial condition of the insurance industry, the adequacy of regulatory supervision, as well as the sufficiency of policyholder protection provided by insurance guarantee funds. 
    • (p3) - GAO has indicated that the dreaded forbearance word was at fault in failing to mitigate, if not prevent, these financial failures. (p3)

      1992 0218 - GOV (Senate - Banking, Housing and Urban Affairs) - Causes and Implications of Insurance Company Failures: on the Concerns about the Financial Condition of the Insurance Industry, the Adequacy of Regulatory Supervision, as Well as the Sufficiency of Policyholder Protection Provided by Insurance Guarantee Funds

    • 1992 0218 - GAO - Insurance Regulation: The Failures of Four Large Life Insurers, Testimony Before the Committee on Banking, Housing, and Urban Affairs United States Senate, Statement of Richard L. Fogel, Assistant Comptroller General, General Government Programs - 21p

  • Valuations Committee

    • In 1907, following the Armstrong investigation and as a result of the panic of that year, the N.A.I.C. adopted a resolution to set the stage to obtain uniformity in valuing securities.
      • Up to 1909, New York and Massachusetts, at their own expense, had prepared valuation lists which were used by other states. In that year, the Valuations Cormnittee of the N.A.I.C. hired its own expert to prepare its list.
      • He was the first salaried staff employee of the N.A.I.C. Later the work was done by professional organizations for a fee; concerns like Moodys and Poor's were employed, with various state insurance departments contributing to the payment of this expense.
    • Several times over the years, the N.A.I.C., through its Valuations Committee, has taken steps to adjust values in times of national economic stress or emergency.
      • As stated above, this was done during the panic of 1907.
      • It was undertaken again during the market demoralization of 1914 and again in 1917.
      • As a result of the stock market crash of 1929, the N.A.I.C. adopted so-called convention values in 1931.
    • Thus, upon at least four different occasions, the N.A.I.C., by realistic and timely action, became a potent factor in protecting the public against insolvency. (p11-12)

    1958 0211 - Insurance Regulation in the Public Interest: "A BETTER N.A.I.C." - by Robert E. Dineen - 122p

    • Mr. Dineen is:
      • a Vice President of the Northwest Mutual Life Insurance Company. 
      • a graduate of College of Law of Syracuse University. 
      • admitted to the New York and Wisconsin Bars. 
      • was Superintendent of Insurance of New York State from 1943 to 1950. 
      • served as President of the National Association of Insurance Commissioners (1946-1947).
    • Presented to Zone 4 of the National Association of Insurance Commissioners at a Seminar - Michigan State University
  • 2022 06 - IAIS - Explanatory note on the draft criteria for the Aggregation Method comparability consultation - 8p
    • (p1) - 2019 1120 - IAIS - Explanatory note on the Insurance Capital Standard (ICS) and Comparability Assessment - 4p
      • 1 Refer to the document Implementation of ICS Version 2.0 - 2p
      • 2 The summary and resolution of comments document can be accessed here - 8p
    • (p2)
      • provide a range of perspectives on this unprecedented area of work
      • The final criteria, along with the definition of comparable outcomes and six HLPs, are expected to be adopted at the IAIS Annual General Meeting in November 2022.
      • The work to date has focused on three areas: selection of the assessment team, the oversight role of the ICS and Comparability Task Force3 (ICSTF) and how each criterion will be assessed and contribute to the final decision on comparability.
      • Based on the ICSTF’s recommendations, the final decision on whether the AM provides comparable outcomes to the ICS will be made by ExCo.
    • (p3) - Key dates
    • (p4) - Annex I: How draft criteria address previous consultation feedback
      • The IAIS undertook a public consultation in November 2020 on the draft definition of comparable outcomes and High-Level Principles (HLPs) to guide the drafting of comparability criteria.
      • In May 2021, the IAIS published a summary and resolution of comments received during the public consultation.