Public consultation on draft revisions to supervisory material related to the Holistic Framework

The consultation closed on 27 June 2024.

Background information

The IAIS Holistic Framework aims to assess and mitigate the potential build-up of systemic risk in the global insurance sector. As part of its endorsement by the Financial Stability Board (FSB), the IAIS committed to consider lessons learnt from its implementation, particularly through the Targeted Jurisdictional Assessments (TJAs), which are intensive assessments of the implementation of the Holistic Framework supervisory material.

Accordingly, the IAIS has reviewed certain Insurance Core Principles (ICPs) and related standards in the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame/CF) that form part of the Holistic Framework supervisory material.

This consultation covers revisions to supervisory material that incorporate lessons learnt, enhance clarity on intended outcomes, ensure consistency in interpretation and avoid unintended consequences. The revisions include:

• Changes to the standards and guidance material related to liquidity risk, counterparty risk appetite, contingency funding plans in ICP 16 (Enterprise Risk Management (ERM) for Solvency Purposes), with the aim of clarifying the standards and addressing any perceived over-prescriptiveness. A summary of the main changes is:
  • ICP 16.6 and CF 16.6.b (counterparty risk appetite): Changes to standards to allow the counterparty risk appetite statement to be specified in the ERM investment policy.
  • ICP 16.9 and CF 16.9.c (contingency funding plan): Changes to the guidance to clarify that the contingency funding plan can be a standalone statement or, at the supervisor’s discretion, integrated fully and comprehensively into other elements of the ERM.

• Updates to the standards and guidance material related to recovery and resolution plans and powers in ICP 12 (Exit from the Market and Resolution), ICP 16 and related ComFrame material. A summary of the main changes and the intended outcomes for those changes are:
  • ICP 12.3 and new ICP 12.4 and CF 12.3.a and new CF12.4.a/b (resolution plans):
    • At the ICP standard level, the IAIS proposes to include a requirement for supervisors and/or resolution authorities to have a process to prepare for resolution in general; and a separate requirement for a process to regularly assess which insurers must have a resolution plan.
    • This means that it is proposed to move the resolution plan requirement from ComFrame to the ICPs, to be applied to all insurers as necessary based on established criteria, and at a minimum for any insurer that is assessed to be systemically important or critical if it fails.
    • These proposed changes are being made to ensure consistency in determining insurers in scope of the requirement, and to align the standards with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions, in recognition of the fact that resolution plans may also be necessary for certain insurers that are not an IAIG, to the extent their disorderly failure may have a systemic impact.
  • ICP 12.8 and CF12.8.a-i (resolution powers):
    • New language is proposed for ICP 12.8 to better clarify the meaning of “an appropriate range of powers” and thereby ensure global consistency in its application.
    • The resolution powers are grouped into eight separate categories. At the ComFrame level, instead of covering all required resolution powers in one standard, these are proposed to be covered in multiple standards, thereby allowing for a more precise implementation assessment.
  • ICP 16.15 and new ICP 16.16 (recovery plans):
    • The proposed changes are made to align with those for resolution plans above, noting that insurers are required to evaluate in advance their specific risks and options in possible recovery scenarios; and the scope of requirement for the development of a recovery plan is aligned with that of resolution plans (ie, based on established criteria, and at a minimum for any insurer that is assessed to be systemically important or critical if it fails).

As a reminder, ICPs are comprised of Principle Statements, Standards and Guidance, as a globally accepted framework for insurance supervision. ComFrame builds on the ICPs and establishes supervisory standards and guidance focusing on the effective group-wide supervision of Internationally Active Insurance Groups (IAIGs).

The ICPs are applicable to the supervision of all insurers within a jurisdiction, which includes IAIGs. ComFrame provides additional standards and guidance applicable only to the supervision of IAIGs.

Within the ICPs and ComFrame, “standards” set out key high-level requirements that are fundamental to the implementation of the ICPs and should be met for a jurisdiction to demonstrate observance; “guidance material” aims to facilitate the understanding and application of the ICPs or ComFrame by including recommendations, clarifications and examples, but do not set requirements. The principle of proportionality underlies all the ICPs and ComFrame. Supervisors have the flexibility to tailor their implementation of supervisory requirements and their application of insurance supervision to achieve the intended outcomes.

For more background, visit our dedicated webpages on the ICPs and ComFrame and on the Holistic Framework.

The IAIS plans to finalise the revisions, taking into account consultation feedback, by the end of 2024, following which the IAIS will also prepare and consult on necessary updates to the associated supporting material.

A public background session was held via webinar on 11 April 2024 14:00-15:00 CEST to present the draft revisions and answer any questions from stakeholders. A recording of the session can be found here.