The world's largest insurers could be forced to hold extra capital against their traditional insurance activities, according to proposals under consultation.
The International Association of Insurance Supervisors (IAIS) is asking for feedback on its design of the high-loss absorbency (HLA) requirement, a capital buffer that will apply only to global systemically important insurers (G-Siis).
The consultation published on 25 June details how the HLA could work in practice. G-Siis already have to meet a basic capital requirement (BCR), which is based on the size and type of insurance they write.
The industry expected the HLA to apply only to non-traditional and non-insurance activities, which insurers consider their only source of systemic risk. However, the text opens the door to the application to traditional insurance business, which would likely force companies to hold more capital.
The consultation paper also provides details about the formula used to calculate the HLA.
Together with the paper, the IAIS published a revised version its work plans for the insurance capital standard (ICS). The standard-setting body has pushed back the date of delivery of the first version of the ICS to 2017.
So far only nine G-Siis have been identified. A list of global systemically important reinsurers is in progress.
InsuranceERM will publish more details on the documents and get reactions from the industry during the course of Friday.
[UPDATE] Our updated coverage below:
Too-big-to-fail insurers face 20% capital loading
Insurance Capital Standard stalls over valuation rift
