IAIS Adopts Group Capital Standard

Internationally active insurance groups (IAIGs) should take note of a critical new group capital standard adopted by a global insurance standard-setting body. This could have an effect on capital requirements for these large insurance businesses in one or more jurisdictions across the world. An IAIG, generally, is an insurance group as to which:

• Premiums are written in three or more jurisdictions, and
• Gross written premiums outside of the home jurisdiction are at least 10% of the group’s total gross written premiums

And, with respect to size (based on a three-year rolling average):

• Total assets are at least USD 50 billion.
• Total gross written premiums are at least USD 10 billion.

On Dec. 5, 2024, at its Annual General Meeting in Cape Town, South Africa, the International Association of Insurance Supervisors (IAIS) adopted the global Insurance Capital Standard (ICS), governing the amount of capital that IAIGs must hold on their balance sheets in order to support their business. The IAIS’s press release is here. The ICS forms the quantitative element of the Common Framework for the Supervision of IAIGs, or ComFrame. The adoption of the ICS comes in the wake of the IAIS’s determination, on Nov. 14, 2024, that the “aggregation method” (AM) for determining group capital in the United States produces “comparable outcomes” to the IAIS’s methodology under the ICS. The comparability finding is significant insofar as, in the United States, capital requirements are imposed by the various states under the coordination of the National Association of Insurance Commissioners (NAIC), as opposed to following the IAIS template, and the IAIS is seeking uniformity in approach on capital standards.

The comparability finding represents confirmation by the IAIS that group capital results determined by a U.S. state using the NAIC criteria will be convergent and consistent with results using the ICS for IAIGs. In the United States, the development of a group capital calculation (GCC) standard (applicable not only to IAIGs), which was completed at the NAIC during 2020 – 2022 and uses an AM approach, caused concern since traditionally capital of U.S. insurers has been calculated and enforced at the level of the individual insurance entity (through the NAIC’s risk-based capital, or RBC, framework), rather than at the level of an insurance group. Ultimately, a GCC requirement was included in the NAIC’s Insurance Holding Company System Regulatory Act (the Model Holding Company Act) in 2020 without specifying consequences for failing to meet the relevant capital requirement. This is different from the RBC framework, in which failure to achieve certain specified quantitative thresholds of RBC gives rise to regulatory remedies such as requiring a corrective plan.