[Federal Register Volume 85, Number 197 (Friday, October 9, 2020)]
[Notices]
[Pages 64228-64231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22384]


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DEPARTMENT OF THE TREASURY


Federal Insurance Office Study on the Insurance Capital Standard

AGENCY: Departmental Offices, Department of the Treasury.

ACTION: Request for information.

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SUMMARY: The Federal Insurance Office (FIO) of the U.S. Department of 
the Treasury (Treasury) is issuing this notice (Notice) to solicit 
input on a future study by FIO (FIO Study) to evaluate the potential 
effects of the insurance capital standard (ICS) on U.S. insurance 
markets, U.S. consumers, and U.S. insurers. FIO coordinates federal 
efforts and develops federal policy on prudential aspects of 
international insurance matters, including representing the United 
States at the International Association of Insurance Supervisors 
(IAIS). Version 2.0 of the ICS was adopted by the IAIS in November 
2019, with a five-year monitoring period starting in 2020 for 
confidential reporting and discussion in supervisory colleges.\1\ FIO 
will consider the responses to this Notice to inform its work on the 
ICS and related matters,

[[Page 64229]]

including future revisions to the ICS and the economic impact 
assessment of the ICS to be conducted by the IAIS in 2023.\2\
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    \1\ For additional information on Treasury's efforts in the 
development of the ICS, refer to FIO's Annual Reports, https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/reports-notices.
    \2\ IAIS, 14 November 2019: Work Plan and Timeline 2020-24, 
https://www.iaisweb.org/page/news/press-releases//file/87171/work-plan-and-timeline-2020-24.

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DATES: Submit written comments on or before January 15, 2021.

ADDRESSES: Submit comments electronically through the Federal 
eRulemaking Portal at http://www.regulations.gov, in accordance with 
the instructions on that site, or by mail to the Federal Insurance 
Office, Attn: Krishna Kundu, Room 1410 MT, Department of the Treasury, 
1500 Pennsylvania Avenue NW, Washington, DC 20220. Because postal mail 
may be subject to processing delays, it is recommended that comments be 
submitted electronically. If submitting comments by mail, please submit 
an original version with two copies. Comments should be captioned ``FIO 
ICS Study.'' In general, Treasury will post all comments to 
www.regulations.gov without change, including any business or personal 
information provided such as names, addresses, email addresses, or 
telephone numbers. All comments, including attachments and other 
supporting materials, are part of the public record and subject to 
public disclosure. You should submit only information that you wish to 
make available publicly.

FOR FURTHER INFORMATION CONTACT: From the Federal Insurance Office: 
Steven Seitz, Director, 202-622-5042, [email protected]; 
Krishna Kundu, Senior Insurance Regulatory Policy Analyst, 202-417-
5221, [email protected]; or Andrew Shaw, Senior Policy 
Advisor, (202) 304-4532, [email protected]. Persons who have 
difficulty hearing or speaking may access these numbers via TTY by 
calling the toll-free Federal Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

FIO's Engagement at the IAIS

    FIO was established by the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010, which authorizes FIO to coordinate 
federal efforts and develop federal policy on prudential aspects of 
international insurance matters, including representing the United 
States at the IAIS.\3\ As part of FIO's commitment to transparency in 
its work at the IAIS, FIO is issuing this Notice to provide the public 
with the opportunity to provide input to help inform FIO's future work 
on the ICS and related matters at the IAIS. Throughout its work at the 
IAIS, FIO will continue to work collaboratively with the other members 
of Team USA--the Federal Reserve Board (Federal Reserve), the National 
Association of Insurance Commissioners (NAIC), and the U.S. states.
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    \3\ 31 U.S.C. 313(c)(1)(E).
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    Both Congress and FIO's Federal Advisory Committee on Insurance 
(FACI) have highlighted the need for further analysis and study of the 
ICS by FIO during the ICS monitoring period from 2020 to 2024. The 
Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 
requires that, before supporting or consenting to the adoption of any 
final international insurance capital standard, the Secretary of the 
Treasury, the Chairman of the Federal Reserve, and the Director of the 
Federal Insurance Office, in consultation with the National Association 
of Insurance Commissioners, complete a study and submit a report to 
Congress on the impact of any such standard on consumers and U.S. 
markets.\4\ Additionally, in December 2019, FACI provided 
recommendations on FIO's future work on the ICS, including that FIO: 
(1) Help drive forward the work needed to ensure timely execution on 
the milestones laid out during the November 2019 IAIS meetings, and (2) 
continue its successful engagement model with stakeholders.\5\
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    \4\ Economic Growth, Regulatory Relief, and Consumer Protection 
Act, Sec.  211(c)(3)(A).
    \5\ Federal Advisory Committee on Insurance, https://home.treasury.gov/system/files/311/December2019FACI_InternationalProposedRecs_0.pdf.
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FIO Study of the ICS

    This Notice seeks input on how FIO should evaluate the potential 
effects of the ICS on the insurance market in the United States, 
including consumers and insurers.\6\ The Notice also seeks input on how 
U.S. insurers operating overseas may be affected by the potential 
implementation of the ICS in other jurisdictions. Comments in response 
to this Notice will help inform FIO's work on the ICS during the 
monitoring period and FIO's views regarding the future structure and 
content of the ICS economic impact assessment that the IAIS intends to 
conduct in 2023. FIO aims to complete its study prior to the IAIS' 
issuance of a public consultation on the ICS as a prescribed capital 
requirement (PCR) and completion of its economic impact assessment in 
2023.
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    \6\ International standards adopted by the IAIS are not binding 
or operational in the United States unless implemented through the 
relevant state or federal legislative or administrative processes, 
as appropriate.
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The ICS

    Since 2013, the IAIS has been developing a global ICS in order to 
create a common language among supervisors for assessing the capital 
adequacy of insurance groups that have cross-border operations or 
internationally active insurance groups (IAIGs).\7\ The ultimate goal 
of the IAIS is the development of a single ICS that includes a common 
methodology through which one ICS achieves comparable (i.e., 
substantially the same) outcomes across jurisdictions. The ICS is based 
on a total balance sheet approach, defined by the IAIS as a concept 
that recognizes the interdependence of assets, liabilities, regulatory 
capital requirements, and capital resources. The total balance sheet 
approach is intended to ensure that the impacts of all relevant 
material risks on an IAIG's overall financial position are 
appropriately and adequately recognized.\8\
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    \7\ An IAIG is defined to be an insurer that meets the following 
two criteria: (1) Internationally Active (i.e., premiums are written 
in three or more international jurisdictions; and gross written 
premiums outside of the home jurisdiction are at least 10 percent of 
the group's total gross written premiums), and (2) Size (based on a 
three-year rolling average), where total assets are at least USD 50 
billion or gross written premiums are at least USD 10 billion. IAIS, 
Insurance Core Principles and Common Framework for the Supervision 
of Internationally Active Insurance Groups, Updated November 2019, 
https://www.iaisweb.org/page/supervisory-material/insurance-core-principles-and-comframe//file/91154/iais-icps-and-comframe-adopted-in-november-2019.
    \8\ IAIS, Risk-Based Global Insurance Capital Standard Version 
2.0 Public Consultation, July 31, 2018, https://www.iaisweb.org/page/supervisory-material/insurance-capital-standard//file/76133/ics-version-20-public-consultation-document.
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    During the monitoring period, the IAIS has asked group-wide 
supervisors to encourage annual confidential reporting of a reference 
ICS that consists of three components: (1) A market-adjusted valuation 
methodology (MAV) with a single discounting approach; (2) a standard 
method for calculating the capital requirement; and (3) converged 
criteria for qualifying capital resources. Additional reporting of the 
ICS based on an alternative valuation methodology, Generally Accepted 
Accounting Principles with Adjustments (GAAP Plus), and other methods 
to calculate the ICS capital requirement would be permitted at the 
option of the group-wide supervisor during the monitoring period. 
Optional reporting could also include the submission of results based 
on the Aggregation Method (AM), which will be under review for 
comparability

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to the ICS during the monitoring period.\9\
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    \9\ Id.
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    Over the last few years, the United States has been leading the 
development of the AM, which leverages the NAIC's group capital 
calculation (GCC) work and the Federal Reserve's Building Block 
Approach (BBA). Building on existing state-based insurance standards, 
the GCC and BBA are each entity-based approaches that take the capital 
resources and capital requirements for each entity within an insurance 
group and aggregate them into a group capital calculation. By using the 
GCC and BBA as the bases for its development, the AM is currently 
structured to be more reflective of the insurance regulatory framework 
and business practices in the United States.
    In November 2019, the IAIS adopted version 2.0 of the ICS, which 
eliminated the options that were analyzed under version 1.0. The IAIS 
has agreed to implement the ICS in two phases--a five-year monitoring 
period from 2020 through 2024 during which the ICS will continue to be 
refined, followed by a second phase when the ICS will be implemented as 
a PCR in 2025.\10\ Further, the IAIS stated in November 2019 that it 
aims to be in a position by the end of the monitoring period to assess 
whether the AM provides comparable--i.e., substantially the same (in 
the sense of the ultimate goal)--outcomes to the ICS. If so, the AM 
will be considered an outcome-equivalent approach for implementation of 
the ICS as a PCR.\11\ Additionally, during the latter half of 2023, the 
IAIS plans to issue a public consultation on the ICS and initiate an 
economic impact assessment, with the aim of addressing the results of 
those undertakings in the final version of the ICS to be implemented as 
a PCR.\12\
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    \10\ IAIS, Explanatory Note on the Insurance Capital Standard 
(ICS) and Comparability Assessment, November 14, 2019, https://www.iaisweb.org/page/news/press-releases//file/87173/explanatory-note-on-the-ics-and-comparability-assessment.
    \11\ Id.
    \12\ IAIS, 14 November 2019: Work Plan and Timeline 2020-24, 
https://www.iaisweb.org/page/news/press-releases//file/87171/work-plan-and-timeline-2020-24.
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II. Request for Comments

    FIO is interested in responses to the following questions. 
Commenters may also provide information on other issues or topics that 
are relevant to FIO's work on the ICS, the FIO Study, and related IAIS 
matters.
    1. If the ICS were adopted in the United States, how would this 
affect the insurance market in the United States, including consumers 
and insurers? How would the adoption of the ICS affect the 
competitiveness of U.S.-domiciled IAIGs, foreign insurance groups with 
significant operations in the United States, and U.S. insurers that 
have current or planned operations abroad?
    2. Please provide information on whether the ICS could create 
regulatory capital arbitrage opportunities or have procyclical effects, 
leading to increased volatility in U.S. insurance markets.
    3. How should the FIO Study consider the potential effects of 
implementing the AM in U.S. insurance markets as compared to 
implementing the ICS? In addition, should the FIO Study consider the 
potential impact upon U.S. insurance markets if credit rating agencies 
were to accept the ICS as a global standard?
    4. What information should be considered in evaluating the impact 
of ICS implementation on the various business lines and the cost and 
availability of different product types in the U.S. insurance market?
    5. If the ICS were implemented in foreign jurisdictions where U.S. 
insurers operate, what effects could the ICS have on the ability of 
U.S. insurers to compete with local insurers and other international 
insurers in these overseas markets? How should FIO evaluate issues 
related to global competitiveness of U.S. insurers and potential 
adoption of the ICS by foreign jurisdictions?
    6. Please provide your views on the following issues, as relevant 
to the FIO Study.
    a. Data for FIO Study: The ICS has been developed with data 
provided by volunteer insurance groups. To what extent should FIO use 
data provided to FIO by individual insurers to conduct the FIO Study? 
In addition to data from specific insurers, are there any other 
relevant data sources that should be used to evaluate the ICS? If so, 
what other sources of quantitative and qualitative data would be 
available, including any data that could be representative of U.S. 
insurance practices and product types.
    b. Market Effects from MAV: The reference ICS is based on a market-
adjusted valuation methodology. What information should be considered 
in assessing MAV versus other valuation approaches and their potential 
effects on the insurance market in the United States, including 
consumers and insurers?
    In particular, how should the FIO Study consider how MAV affects 
the following areas?
    i. Changes to U.S. insurer investment behavior and ability to match 
asset-liability cash flows;
    ii. Implications for product offerings and shifts in product mix 
for both life insurers and property & casualty insurers; and
    iii. Potential effects on insurers' role as a significant source of 
long-term investment and liquidity in the economy.
    c. Capital Requirement: The ICS capital requirement is based on a 
standardized framework, whereby the calculation of ICS required 
capital, including the risks and stresses, is defined. How should the 
FIO Study consider the following?
    i. The extent to which jurisdiction-specific risks should be taken 
into account; and
    ii. The use of internal ratings for assessing credit risk 
exposures.
    d. Available Capital: The reference ICS measures available capital 
according to IAIS-established criteria and composition limits. The IAIS 
is also considering transitional arrangements during the monitoring 
period in order to ensure a smooth transition of the ICS as a PCR. How 
should the FIO Study consider the following?
    i. Application of transitional arrangements during the monitoring 
period; and
    ii. Implications for the fungibility of capital \13\ under the ICS.
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    \13\ Fungibility of capital refers to the availability of 
capital resources in the balance sheet of a single company in a 
group to fully absorb any amount of losses within that group (i.e., 
the ability to absorb losses arising anywhere within the IAIG).
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    e. Jurisdictional Flexibility: The reference ICS recognizes a 
limited number of areas for national discretion, such as senior debt as 
qualifying capital. Should the FIO Study evaluate any further 
application of jurisdictional flexibility for ICS implementation?
    7. Please provide any views regarding the following additional 
issues, as they relate to the FIO Study.
    a. What data and input from market participants should be taken 
into consideration?
    b. Describe any data or data services that independent third 
parties could provide for purposes of the FIO Study.
    c. For the purposes of the FIO Study, would a ``point in time'' 
analysis be appropriate or would another time frame be more relevant 
for determining the implications? \14\
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    \14\ Point in time analysis refers to taking a snapshot of the 
ICS at a particular point in time during the monitoring period and 
conducting a study based on the ICS framework at that time. The IAIS 
has stated that it expects the monitoring period to be a period of 
stability. As noted above, FIO aims to complete the impact study for 
input to the IAIS before issuance of the public consultation of the 
ICS as a PCR and the economic impact assessment in 2023.

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    8. How should the FIO Study inform FIO's engagement on the IAIS 
economic impact assessment of the ICS?
    9. How has the COVD-19 pandemic informed your views on the issues 
discussed in this Notice?
    10. Please provide any other comments on the issues discussed in 
this Notice.

Steven E. Seitz,
Director, Federal Insurance Office.
[FR Doc. 2020-22384 Filed 10-8-20; 8:45 am]
BILLING CODE 4810-25-P