iais standards setting activities

IAIS Standards Setting ActivitiesIAIS Standards Setting Activities

London – 3 February 2004Yoshi Kawai – Secretary General

International Association of Insurance Supervisors (IAIS)Website: www.iaisweb.org

IAIS Standards Setting ActivitiesIAIS Standards Setting Activities2February 2004

Yoshi Kawai

OverviewOverview

1. IAIS structure and process

2. Insurance Core Principles

3. IAIS views on IASB standards

4. Solvency standards

5. Reinsurance standards

6. Implementation of IAIS standards


Yoshi Kawai

1.11.1 IAIS Structure IAIS Structure –– January 2004January 2004

Secretariat

Dialogue Group

SecretariatBudget Committee

Education Subcommittee

Emerging Markets Committee Working Group on Observership & Membership Issues

Insurance Laws, Regulations, Practices& Standards Subcommittee

Task Force on Assessment& Implementation of ICPs

Investments Subcommittee Financial Conglomerates Subcommittee

Subcommittee on Enhanced Disclosure Insurance Fraud Subcommittee

Solvency & Actuarial Issues Subcommittee Working Group on Electronic Commerce/Internet

Task Force on Enhancing Transparency& Disclosure in the Reinsurance SectorAccounting Subcommittee

Reinsurance and Other Forms of Risk Transfer Subcommittee

Technical Committee

Executive Committee

Association in General Meeting

Task Force on the Core Curriculum Project

Task Force on the Revision of the By-laws


Yoshi Kawai

1.21.2 IAIS Standard SettingIAIS Standard Setting

Core Principles

PrinciplesSupervisory Standards

Guidance & Issues Papers

• Two pillar approach


Yoshi Kawai

1.31.3 IAIS Document AdoptionIAIS Document Adoption

Paper Outline or Initial Draft

Approval or Redirection

Adoption (hopefully)

Working Party

Technical Committee and Executive Committee

General Meeting of Members

WP Members Some Observers

IAIS Members & Observers

√

IAIS Members & Observers


Yoshi Kawai

OverviewOverview


2. Insurance Core Principles3. IAIS views on IASB standards





Yoshi Kawai

• The first ICPs adopted in October 2000, based on 1997 Insurance supervisory principles

• FSAP (the Financial Sector Assessment Program) started in 1999

• Joint Forum comparison of the core principles in banking, insurance and securities sectors in 2001

• FSAP experiences• Final Revised ICPs adopted in Oct 03

2.12.1 History of Insurance Core PrinciplesHistory of Insurance Core Principles


Yoshi Kawai

• Extend scope • Reinforce existing principles• Cover reinsurance supervision widely• “ Preconditions” are converted to a

“principle”• Integrate principles and methodology

2.22.2 Major ICP ChangesMajor ICP Changes


Yoshi Kawai

ICP 2: Supervisory objectives

ICP 3: Supervisory authority

ICP 3: Supervisory authority

ICP 6: Licensing4. The supervised entity

ICP 5: Supervisory cooperation and information sharing

3. The supervisory system

Reason for supervision, Scope of ICPs, Implementation & Assessment1. Introduction

ICP 10: Internal control

ICP 1: Conditions for effective insurance supervision2. Conditions

ICP 7: Suitability of persons

ICP 8: Changes in control and portfolio transfers

ICP 9: Corporate Governance

Revised ICPsContents

2.32.3 ICP Structure & ContentICP Structure & Content


Yoshi Kawai

ICP 22: Derivatives and similar commitments

ICP 15: Enforcement or sanctions

ICP 16: Winding-up or exit from the market

ICP 17: Group-wide supervision

ICP 11: Market analysisICP 12: Reporting to supervisors and off-site monitoringICP 13: On-site inspection

ICP 18: Risk assessment and management6. Prudential requirements

ICP 14: Preventive and corrective measures

5. Ongoing supervision

ICP 23: Capital adequacy and solvency

ICP 19: Insurance activity

ICP 20: Liabilities

ICP 21: Investments




Yoshi Kawai

ICP 28: Anti-money laundering, combating the financing of terrorism8. AML/CFTReferences to other IAIS principles, standards and papersAnnex 1

ICP 24: IntermediariesICP 25: Consumer protectionICP 26: Information, disclosure & transparency towards the market

Assessment methodologyAnnex 2

ICP 27: Fraud

7. Markets and consumers




Yoshi Kawai

OverviewOverview



3. IAIS views on IASB standards4. Solvency standards




Yoshi Kawai

3.13.1 IASB projects on insurance and financial IASB projects on insurance and financial instrumentsinstruments

Insurance contracts project– Accounting for insurance contracts – Two step approach

• Phase I• Phase II

Financial instruments project (Revised IAS 39)


Yoshi Kawai

3.23.2 IAIS views on IASB standardsIAIS views on IASB standards

• The IAIS supports harmonisedaccounting principles

• The consistent approach to assets and liabilities is essential

• The IAIS disagrees to possible mismatch in accounting models in phase I


Yoshi Kawai

What if assets & liabilities are similarly valued..What if assets & liabilities are similarly valued..

(Source) ACLI-IAA Second Joint Research Project, 3 June 2003


Yoshi Kawai

What if assets & liabilities are dissimilarly valued..What if assets & liabilities are dissimilarly valued..

(Source) ACLI-IAA Second Joint Research Project, 3 June 2003


Yoshi Kawai

3.23.2 IAIS Views on IASB standards IAIS Views on IASB standards (cont.)(cont.)

• IAIS proposal to mitigate the problem of mismatch– Temporary modification to asset measurement

bases in the phase I – Introduction of the concept: assets with fixed

maturity matching insurance liabilities and held at amortised cost


Yoshi Kawai

3.23.2 IAIS Views on IASB standards IAIS Views on IASB standards (cont.)(cont.)

• Use of own credit rating– Insurance supervisors are unanimously against the use

of own credit rating in measurement of liabilities

• Practicality– Practicality should be taken into account,

in particular, in emerging markets

• Due process


Yoshi Kawai

OverviewOverview




4. Solvency standards5. Reinsurance standards



Yoshi Kawai

• Adopted in 2002• Capital Adequacy and Solvency (principle)

– Adopted in 2003:

• Quantifying and assessing insurance liabilities (2003) (discussion paper)

• The use of actuaries (guidance paper)

• Solvency control levels (guidance paper)

• Stress Testing by insurers (guidance paper)

4.4. Solvency standards Solvency standards


Yoshi Kawai

• In next two years: • Suitable forms of capital (standard)

• Capital adequacy requirements (standard)

• Framework on solvency requirements

4.4. Solvency standards (cont.)Solvency standards (cont.)


Yoshi Kawai

OverviewOverview





5. Reinsurance standards6. Implementation of IAIS standards


Yoshi Kawai

5.5. Reinsurance standardsReinsurance standards

• Supervision of reinsurance– Evaluation of reinsurance cover– Supervision of reinsurance companies

• Disclosure and transparency of reinsurance


Yoshi Kawai

• Supervisory Standard on the Evaluation of the Reinsurance Cover of Primary Insurers and the Securities of their Reinsurers in January 2002– Applies to the supervision of the reinsurance cover

of primary insurers– It discusses:

• The policies and procedures that primary insurers should have in place

• Supervisory approaches for evaluating the adequacy of the reinsurance cover

5.1 5.1 Evaluation of Reins CoverEvaluation of Reins Cover


Yoshi Kawai

• Principles on Minimum Requirements for Supervision of Reinsurers in October 2002

– All reinsurers should be supervised

– Anticipate a global approach to supervision based on supervision by the home jurisdiction

5.25.2 Supervision of ReinsurersSupervision of Reinsurers


Yoshi Kawai

• Standard on Supervision of Reinsurers in October 2003

– Focuses on Supervisory Review • Technical provisions• Investments & liquidity• Economic capital• Corporate governance• Exchange of information

• Current activities: Mutual recognition

5.3 5.3 Further Supervision of ReinsurersFurther Supervision of Reinsurers


Yoshi Kawai

– Responds to concerns raised notably by the Financial Stability Forum

– Task Force on Enhancing Disclosure and Transparency in the Reinsurance Sector (Task Force Re) established in October 2002

– Developing an outline for global reinsurance market statistics

5.45.4 Transparency of ReinsuranceTransparency of Reinsurance


Yoshi Kawai

OverviewOverview

1. IAIS structure and process2. Insurance Core Principles3. IAIS views on IASB standards4. Solvency standards5. Reinsurance standards



Yoshi Kawai

6.6. Implementation of IAIS standardsImplementation of IAIS standards

• Aiding the Implementation of Standards– Organising Training & Seminars– Developing implementation tools– Facilitating Provision of Technical Assistance– Assisting FSAP

• Cooperation– Forum for Discussion amongst Supervisors– Represent the Insurance Sector in International Forums

• Joint Forum, Financial Stability Forum, IASB, IFAC etc


Yoshi Kawai

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