Standard Life Investments

Inside Global Insurance Investment

Towards a global capital standard

The insurance industry took another important step towards establishing a worldwide capital standard.

October 2016

The third quarter of 2016 saw the latest potentially significant milestone in the development of a global risk-sensitive regulatory capital system: the Internal Association of Insurance Supervisors (IAIS) published its second public consultation on the formulation of its International Capital Standard (ICS). Version 1.0 of the ICS is scheduled for implementation in mid-2017, and will apply to firms designated as Internationally Active Insurance Groups (IAIGs).

The preliminary design of the ICS is broadly aligned to Solvency II, intended to be a risk-sensitive estimate of the 1-year 99.5th percentile change in assets net of liabilities. Initial field tests of the ICS system have produced risk contribution profiles that will appear reasonably familiar to large insurance groups (see Figure 1).

Figure 1: ICS Risk Contributions (2015 Field Testing)

However, many important features of the ICS still need to be finalised. These include, for instance, the extent to which assets should be valued on a mark-to-market basis and whether internal models will eventually be permitted in the assessment of the ICS. This second stage of the consultation process will provide what will presumably be a near-final iteration of ICS Version 1.0. Further evolution can be expected in subsequent versions (Version 2.0 is already penciled in for 2019). Version 1.0 reporting will be confidential, but subsequent versions may be publicly reported.