According to Fitch Ratings, the finalisation of the Insurance Capital Standard (ICS), a new global solvency standard for internationally active insurance groups, is likely to be the most significant regulatory development for global insurers in 2024.
The agency explained that a public consultation on the ICS as a prescribed capital requirement (PCR) closed on September 21, 2023 and the International Association of Insurance Supervisors (IAIS) is currently assessing the economic impact of the standard, which is set to take effect by end-2024.
Fitch explained that the ICS could potentially lead to closer alignment of capital standards for internationally active insurance groups, however it is difficult to create a global standard to which all jurisdictions will agree.
At the same time, while many jurisdictions have adopted Solvency II-like frameworks, the US is set to be taking a different approach, an aggregation method to calculate insurance group capital.
As a result, the IAIS is evaluating whether this should be considered an outcome-equivalent approach to the ICS.
Further, Fitch also stated that it does not expect the ICS to impose significantly different regulatory capital requirements given the widespread adoption of Solvency II-like frameworks, as well as the likely flexibility to accommodate national market specificities and even the US aggregation method.
The agency said it is likely to be neutral for ratings and will not necessarily lead to fully consistent group capital calculations.
It is also worth noting that another important regulatory development for insurers in 2024 will be the introduction of IFRS sustainability disclosures.
The International Sustainability Standards Board finalised the reporting templates for these back in June 2023, and insurers will have to disclose the financial materiality of climate-change risks for annual reporting periods from 1 January 2024.
Lastly, the disclosures will add to the growing influence of ESG considerations on insurers’ underwriting and investment strategies.
