“AM for group capital assessment does the same thing as ICS, but from a different perspective,” said Steve Brody, vice president of financial policy at the Casualty Insurance Association of America (APCIA), which strongly favors AM for US insurers. “ICS is a consolidated capital requirement at group level, while AM aggregates the capital requirements of all legal entities within the group – regardless of where they are based around the world – in producing a total group capital assessment.”
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With AM, regulators have the ability to see where capital is within the group because they have access to an inventory that shows the capital requirements and capital resources of the different legal entities. In essence, insurance supervisors have tools to determine where and when financial problems may arise. This is not possible with the ICS method, which is consolidated at group level, meaning regulators cannot see where capital is located within the group.
“This is one area where we think AM is better than the ICS approach,” Brody told Insurance Business. “Another key difference between the two is that ICS is based on a fair valuation of assets and liabilities – this is similar to the approach taken by Solvency II in the EU – while AM takes legal entities as it finds them. In the US, we use generally accepted accounting principles (GAAP) for public reporting and statutory accounting adopted by the National Association of Insurance Commissioners (NAIC) for regulatory reporting – both based on a different accounting method than that used in Europe for Solvency II .”
A recent study released ahead of the IAIS Global Workshop by the Federal Reserve Board’s Insurance Policy Advisory Committee found that “as currently constructed, the ICS would not be appropriate as a capital rule for US-based internationally active [life] insurance groups”. As for P&C insurers, APCIA believes that “the application of the ICS to US insurers would require the use of a different regulatory accounting system at great expense solely to implement the ICS.”
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Both the NAIC and the Federal Reserve Board have indicated that the ICS will not be adopted in the US. The Group Capital Assessment AM is already in various state legislatures, and while it will take time to fully implement, APCIA “strongly supports adoption and implementation at the state level.”
In relation to the comparability assessment consultation, Brodie reiterated: “ICS and AM assess group equity from different perspectives. European supervisors have argued for a much more quantitative approach to assessing comparability with AM, but we [the APCIA] I would like to see a combination of quantitative analysis as well as looking at qualitative regulatory factors.”
APCIA is the primary national trade association for home, auto and business insurers, promoting and protecting the viability of private competition for the benefit of consumers and insurers. Its members represent all sizes, structures and regions – protecting families, communities and businesses in the US and around the world.
“We are now beginning the process of reviewing the proposed criteria with our members,” Brody said. “We have a short time to do this as the deadline for comments is August 15. We want our members to give us their opinions on what is specific to them as well as overall [group capital assessment] Approaching.”