In its commitment to address risks of Global Systemically Important Insurers (“G-SIIs”) on the global financial system, the International Association of Insurance Supervisors (“IAIS”) recently announced completion of its development of the Higher Loss Absorbency (“HLA”) requirement for G-SIIs. The HLA was established to help reduce the impact of the distress or failure of a G-SII on the financial system. The HLA has also been endorsed by the Financial Stability Board and will apply to G-SIIs effective January 2019.
The HLA is the second step in IAIS’s long-term goal to develop global insurance standards. The Basic Capital Requirements (“BCR”) was established by the IAIS in October 2014 to apply to all group activities of G-SIIs, including non-insurance activities. The development of a risk-based group-wide global Insurance Capital Standard, planned to be adopted by the end of 2019, is the final step.
The HLA will be reported to group-wide supervisors on a confidential basis beginning in 2016 and will be shared with the IAIS for implementing improvements. G-SIIs are expected to hold qualifying regulatory capital that is not less than the sum of the required capital amounts from the BCR and HLA beginning in 2019.
The IAIS will continue to review the HLA and BCR requirements on an annual basis and recommend revisions as necessary.