The International Association of Insurance Supervisors (IAIS) has released an updated Assessment Methodology (2016 Methodology) for global systemically important insurers (G-SIIs), as part of its three-year review cycle. The new process includes revisions to the initial assessment methodology, which was first published in 2013.
The 2016 Methodology outlines a five-phase approach to the G-SII assessment process that includes fact-based qualitative and quantitative elements. The IAIS has modified certain indicators used in the initial assessment methodology to address issues related to indicator responsiveness, connection with systemic risk and data quality, including reliability (across both insurers and jurisdictions).
The new methodology uses absolute reference values for derivatives trading, financial guarantees and reinsurance indicators. The 2016 Methodology also covers all types of insurance and reinsurance, and other financial activities of global insurers.
Five-phase approach
A five-phase approach is incorporated in the methodology, in which the first two phases involve quantitative components, including a data collection phase in phase I and determination of a quantitative threshold in phase II.
The next phase complements the first two phases through the collection and analysis of additional quantitative or qualitative information that is not captured in phase II indicators.
Phase 4 of the methodology enables Prospective G-SIIs to receive information regarding that insurer’s status through the first three phases and present additional information relating to any aspect of the methodology.
In the last phase, the first four phases are combined to produce an overall assessment that concludes with the IAIS’ recommendation to the Financial Stability Board.
In addition to the Methodology, the IAIS released a related paper it had consulted on in November 2015 Systemic Risk from Insurance Product Features. This paper offers a framework that explains why certain product features and related activities may raise the potential for an insurer to pose systemic risk upon failure. It also describes the rationale for the IAIS’ discontinuation of the Non-traditional,
Non-insurance (NTNI) product label and its replacement with a rough, nuanced assessment of product features.