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CONVERGENCE: The new secretary-general of the IMS says the move toward a global capital standard and development of a common framework for the supervision of international insurance groups are key priorities.

Jonathan Dixon, an insurance regulator from South Africa, begins his tenure as secretary-general of the International Association of Insurance Supervisors at what he says is an exciting time for the organization.

As the association seeks to promote both global stability and consumer protection, it is set to engage in several new projects, Dixon said in an interview with Best's Review ahead of the organization's annual conference in Kuala Lumpur, Malaysia, in November. At the same time, he said, new issues are emerging.

The top priorities for his tenure, he said, include: delivering on current commitments to help promote a more stable global financial system; remaining alert to emerging risks and opportunities; and promoting the adoption of a global insurance capital standard by the end of 2019.

At the Kuala Lumpur conference, however, the IAIS announced an agreement to push back the timeline for the adoption of a global capital standard. The IAIS said its members agreed to a "unified path to convergence of group capital standards" taking it closer to its ultimate goal of a single standard. The IAIS agreed that implementation of ICS Version 2.0 will be conducted in two phases--a five-year monitoring phase followed by an implementation phase.

Speaking in October before the announcement, Dixon said there is a continuing trend toward greater convergence in international insurance regulation. The move toward a global capital standard, he said, will continue as the IAIS itself completes some of its own major projects.

In the long term, Dixon regards this convergence as inevitable, "given the global nature of insurance."

But it is also important, Dixon said, to recognize that these trends do not follow "a straight linear trajectory." The implication for a global standard-setting body like the IAIS, he said, is that there are many issues to work through. However, he was "very bullish on the ability of the IAIS to deliver on its commitments."

Out of Africa

Dixon, who officially began his tenure on Nov. 3 at the end of the annual conference, succeeds Yoshihiro Kawai, who had been secretary-general since 2003. Dixon draws on years of experience as a regulator in South Africa.

In 2008, he became deputy executive officer of the Financial Services Board of South Africa, with oversight of supervision and regulation of that country's insurance sector. "He is well-respected and his selection seems to have been welcomed by industry and the IAIS community," said Howard Mills, global insurance regulatory leader at Deloitte Services.

Michael Consedine, chief executive officer at the National Association of Insurance Commissioners, described Dixon's appointment as huge.

"It represents a wonderful opportunity for the entire IAIS community to have somebody who has a great deal of expertise and experience and grasp of these issues to come in and give them a fresh look and give the organization and its culture a fresh look," Consedine said. Also, he added, Dixon's background gives him an advantage. South Africa, he said, is "very diverse in terms of its market and in terms of its supervisory practices."

Like the world itself, Dixon said, South Africa presents great contrasts. A sophisticated insurance sector exists alongside "a high degree of financial exclusion." In announcing Dixon's appointment in February 2017, the IAIS said he had "transformed" insurance regulation in South Africa, emphasizing risk and outcomes.

"Having headed up insurance supervision in South Africa for nine years, you can say that I understand the environment in which our members operate," Dixon said.

For the past eight years he has been South Africa's representative on the IAIS' executive committee. Dixon, who has chaired the IAIS' implementation committee, said the various insurance markets around the world contain a "range of circumstances, philosophies and legal frameworks. But I think what is reassuring is that our members remain fully engaged on these topics through a robust and transparent process."

The NAIC's Consedine said he regards the membership of the IAIS as being much the same as that of the NAIC and said Dixon will be able to convey his own perspective as a regulator. Dixon, Consedine added, will focus more on directing policy than creating it.

"One of his roles is to counsel the membership and to help identify the practical issues that the membership is grappling with," Consedine said.

With a secretariat based in Basel, Switzerland, the IAIS draws its membership from almost 140 countries and more than 200 jurisdictions.

Dixon said the association focuses on providing a forum for global debate on issues of mutual concern.

"My role as secretary-general really is to lead the secretariat team in providing support for and facilitating these deliberations," Dixon said.

A Step Forward

The IAIS's efforts to develop a global capital standard, however, had generated significant opposition from regulators, insurers, trade groups and others in the United States.

As recently as last year, the National Association of Mutual Insurance Companies urged lawmakers to closely monitor discussions over international insurance regulations and stop global regulators from exerting too much influence on the supervision of U.S. carriers.

The November agreement represents a path forward for regulators. "There was a significant announcement at the IAIS annual meeting regarding the development of a global insurance capital standard that will impact internationally active insurance groups and the NAIC as it looks to push forward with its group capital calculation," Deloitte's Mills said.

The IAIS Executive Committee announced a future two-phase approach to implementation together with "an additional path" for the United States, he said. Under a first phase, the ICS v 2.0 would be launched with a five-year monitoring period. During this monitoring period the ICS will be reported on a confidential basis to supervisors.

In addition, the ICS will not be viewed as a Prescribed Capital Requirement during the monitoring period and as a consequence there will not be any supervisory actions for a breach of the PCR. There will be additional use of GAAP Plus reporting and a use of internal models.

The second phase after the five-year monitoring period would be implementation, Mills said.

The announcement generated a mix of responses in the United States.

The agreement on ICS v 2.0 reached in Kuala Lumpur "was a positive development for the U.S." said Christina Urias, principal of Christina Urias Consulting LLC.

With this agreement, the IAIS was opening the door to testing the U.S. aggregation approach for group capital, said Urias, who participated in IAIS committees during her tenure as director of insurance in Arizona and the NAIC's managing director for international insurance regulatory affairs.

"U.S. regulators achieved an agreement that the IAIS would collect data and test the aggregation-based group capital calculation for comparable outcomes with the ICS. That's a big deal," she said. "All of this is a very positive step forward."

"This is a remarkable accomplishment, achieved through a lot of give and take," said Ted Nickel, president of the National Association of Insurance Commissioners. "It has been said that it is always darkest before the dawn and with this path forward on Version 2.0, we have our dawn."

Mills, however, said some are concerned about what they will be required to do to comply with the new approach. "The U.S. insurance industry is concerned that they will have to go through the expense of preparing multiple ways of calculating capital: the ICS, the aggregation-based approach the NAIC is developing and which the IAIS will monitor and determine after five years if it is equivalent to the ICS, and the market-adjusted valuation approach," Mills said.

Speaking before the announcement, Cristina Mihai, head of prudential regulation and international affairs for Insurance Europe in Brussels, said work on international capital standards has caused supervisors to communicate more effectively among themselves. This, she said, has deepened their mutual understanding by encouraging the supervisors to explain how their systems work.

Insurance Europe, whose membership is made up of 35 national insurance associations, describes itself as the European insurance and reinsurance federation.

A Convergence Example

Although the concept of a global capital standard had met with opposition in the United States, Dixon pointed out that Solvency II is "a positive example of convergence."

Dixon said he has seen a desire from some jurisdictions to extract lessons from Solvency II that would apply to their own domestic situations. Some of these jurisdictions, Dixon said, want the convergence of international regulation "to better reflect the global nature of insurance."

Insurance Europe's Mihai said a Solvency II-style approach is not exclusive to the EU. Similar regimes, she said, are found in Switzerland, Mexico and Bermuda. Mihai said it is no surprise that non-EU regulators, notably in the United States, have expressed caution about Solvency II, noting that insurance regulation is produced by individual jurisdictions rather than by the IAIS. The focus of the IAIS, she said, is on principles, standards and application papers. "And of course, some of these principles, some of the standards can become regulations," Mihai said,"but it is really a jurisdictional decision." Mihai said there appears to be a perception that the implementation of a global insurance capital standard is like Solvency II. "We wouldn't agree with that," she said.

Both Solvency II and the ICS are designed to protect policyholders and promote financial stability, Mihai said. But, she noted that Solvency II deals with such things as risk management, governance and reporting. By contrast, she said, the capital standard is concerned only with capital.

Other Initiatives

Since its founding in 1994, the IAIS has been at work on a number of initiatives as it seeks to bring about a more consistent global framework to regulation.

These include not just the international capital standards, but also the designation of globally systemically important insurers and the common framework for the supervision of international insurance groups. The IAIS has been participating in a global initiative under the purview of the Financial Stability Board and G20 to identify global systemically important financial institutions, with a focus on insurers, according to the IAIS. In 2013, the FSB announced a list of nine multinational insurance groups it considered to be systemically important, including three based in the United States, according to the NAIC. A list updated in 2016 also contained nine insurers, but not the same nine as first announced.

The IAIS in 2016 released new rules on global systemically important insurers, adopting industry suggestions on emphasizing individual company risk to better judge threats to the world economy and tossing out the poorly defined nontraditional/noninsurance metric. Those rules updated the methodology IAIS adopted in 2013 and incorporated a range of industry recommendations. The FSB in 2014 also said it would issue G-SII designations to major reinsurers.

Dixon said a key project now is the common framework for the supervision of internationally active insurance groups, usually referred to as ComFrame. The common framework, the association has said, will move beyond the IAIS' own insurance core principles, which now guide international insurance supervision.

by Robert O'Connor

Robert O'Connor is London news editor. He can be reached at robert.oconnor@ambest.com.

Key Points

New Leader: As Jonathan Dixon assumes the role of secretary-general of the International Association of Insurance Supervisors, the organization is pushing back the deadline to enact a global capital standard.

Big Deal: The agreement on the global insurance standard shows the IAIS is willing to test the U.S. aggregation approach for group capital.

Concerns Remain: Many insurance experts are wondering what the requirements will be to comply with the new approach.
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Title Annotation:Regulation
Comment:CONVERGENCE: The new secretary-general of the IMS says the move toward a global capital standard and development of a common framework for the supervision of international insurance groups are key priorities.(Regulation)
Author:O'Connor, Robert
Publication:Best's Review
Geographic Code:6SOUT
Date:Dec 1, 2017
Words:1909
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