IAIS confirms ambition to develop global Solvency II standard

At least 17 national insurance supervisors have signed on to plans for an internationally harmonised regulatory insurance standard similar to Solvency II, the International Association of Insurance Supervisors (IAIS) has confirmed.

The Basel-based association – which represents insurance supervisors in 190 countries – has received applications from 17 regulators to be validated as signatories to the IAIS multilateral memorandum of understanding (MMoU).

Once the applicants are validated, they will agree to abide by the MMoU which seeks to "establish a formal basis for co-operation and information exchange between signatory authorities regarding the supervision of insurance companies where cross-border aspects arise" and "includes providing information on operations of insurance companies".

The provisions of the MMoU do not create any legally binding obligations, supersede any jurisdictional law or create any directly or indirectly enforceable rights, but the move has been interpreted as the first step towards the creation of a framework along the lines of the European Commission's Solvency II accord, although the process is admittedly still in its infancy.

Solvency II will introduce economic risk-based solvency and capital requirements for insurance firms across the European Union when it is transposed into national law by member states in 2012. The new solvency requirements are designed to be more risk-sensitive and more sophisticated than the preceding Solvency I framework, enabling better coverage of the risks run by insurers and strengthening the protection enjoyed by both providers and policyholders.

In the long term, the IAIS is working to extend the common standards, risk measures and information sharing legislated for under Solvency II on a global scale.

 "The IAIS is considering options for the extension of the regulatory and supervisory framework to the supervision of internationally active insurance groups. A new working group has been established and work has commenced on comparing and assessing existing assessment frameworks," said a member of the IAIS secretariat, Nancy Sinclair. "Once this assessment is complete, the working group will consider model options for doing further analytical work regarding the design and practicality of a common assessment framework. Based on the working group findings, the IAIS will assess the merits of developing a common assessment framework for insurance group supervision," she added.

Sinclair added that, while only 17 regulators are party to the MMoU at present, the number of agencies applying to become signatories is expected to "steadily increase", as additional applicants satisfy the "rigorous and independent validation" process established to ascertain whether the minimum standards of the MMoU have been met.

Following the IAIS's most recent meeting in Tapei in late June, the association's next task is to develop guidance governing the establishment of supervisory colleges to create a permanent forum for co-operation and information exchange in group-wide insurance supervision, facilitate improved convergence in supervisory practices and create a mechanism to foster better crisis management.

"Ultimately, the involved supervisors would be expected to agree on the role and functions the supervisory college should undertake. We are finalising a guidance paper on supervisory colleges in group-wide supervision and the paper is expected to be released in October 2009," Sinclair concluded.

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