E.2 Global Capital Standards Flashcards
1
Q
Purpose of Insurance Capital Standards (ICS)
A
- ICS is intended to serve as a min capital requirement for IAIGs
- should complement supervisory tools within ComFrame
2
Q
ICS Principles
A
- create a consolidated group wide standard for IAIGs and GSIIs
- ICS main objective - protect PHs and financial stability
- create a foundation for higher loss absorbency for GSIIs
- reflect all material risks to which an IAIG is exposed
- Comparability of outcomes across jurisdictions to increase understanding of IAIGs across jurisdictions
- Promote sound risk management by IAIGs and GSII
- Promote prudentially sound behavior while minimizing inappropriate pro-cyclical behavior
- strike an appropriate balance between risk sensitivity and simplicity
- transparency - particularly with disclosure of final results
- Capital requirements based on appropriate target criteria
3
Q
3 Major components of ICS
A
- Valuation basis
- a new valuation basis
- value liabilities on a current estimate basis
- symmetric valuation of assets and liabilities
Market Adjusted Valuation (MAV)
- based on MV of assets and current estimate liabilities
- MVA discount rate = rfr + prescribed spread
GAAP-Plus:
- start with local GAAP, then make adjustments
- liability values = best estimate GP valuation
- Future changes in GAAP or IFRS could impact the decision to use this method
- Qualifying capital resources
- 2 tiers of qualifying capital based on loss absorbency and PH protection
- goal : consistent treatment of capital resources across jurisdictions
- Margin over current estimate (MOCE) - provision for uncertainty
- CoC MOCE = based on assumed cost of holding ICS required capital
- Prudence MOCE - based on VAR 75 of an assumed loss distribution - Capital Requirements
- ICS capital requirement = 1 year stress test VAR 99.5 on the IAIG insurance, investment, market, and operational risk
- Redundant with MOCE?
- how to calibrate?
