Sai Sireesh: Insurance Supervision – The Future

Whilst there is a lot of focus on banking, the insurance sector is also witnessing a wave of regulatory changes specially around cross-border exposures. So I did some quick research on the world of insurance supervision.

Devoid of dramatics, the Basel, Switzerland based IAIS (International Association of Insurance Supervisors) has been quietly driving adoption of  enhanced regulatory and risk management best practices. IAIS represents insurance supervisors of around 190 jurisdictions in nearly 140 countries. The IAIS issues global insurance principles, standards and guidance papers, provides training and support on issues related to insurance supervision and works closely with other international institutions to promote financial stability. During the Jul-Aug 2009 timeframe, IAIS reaffirmed a number of actions being taken to reinforce insurance regulation and improve the resilience of the global insurance sector against new challenges. Some of the broad actions being:

• Developing guidance on the use of supervisory colleges in group-wide supervision, which will be consistent with the FSB protocols. This guidance will take into account responses from a recent IAIS survey among insurance supervisors on their  experience with supervisory colleges;

• Expediting the application approval process and encouraging additional members to join the IAIS Multilateral Memorandum of Understanding (MMoU) which is now operational; The MMoU is one of the IAIS’s key responses to the G20 Declaration to strengthen international cooperation among supervisors. The MMoU is a framework for cooperation and the exchange of information and sets minimum standards to which signatories must adhere. With the MMoU in place, insurance supervisors will be better equipped to improve the effectiveness of cross-border supervision of insurance companies. The MMoU will also contribute to the global effort to ensure that systemically important financial institutions are appropriately regulated. The MMoU has a crucial part to play in this. Each authority applying to be a signatory undergoes a rigorous and independent validation process to ascertain whether the minimum standards of the MMoU are satisfied. Signatories can therefore take comfort that the information they exchange is properly protected.

• Proceeding with research into the design and practicality of a common assessment framework for insurance group supervision.

In mid of 2009, IAIS announced a long term vision to adopt and develop a global regulatory insurance standard similar to EU’s Solvency II. In EU, the new Solvency II that will become a law by 2012 introduces risk-based solvency and economic capital requirements for insurance firms across Europe. The focus is on more risk-sensitive measures to better manage risk exposures. This IAIS proposal has already received support from 17 national supervisors as part of a memorandum of understanding (MOU) that will be validated soon. This MOU will form the basis for consistent coordination and information exchange between insurance supervisors across borders. Albeit not a legally binding obligation, this is a significant step towards a global insurance regulatory framework. A working group has been setup to help explore a regulatory and supervisory framework that will help better manage internationally active insurance groups.

The IAIS has committed to ensuring that insurance supervisory tools are continuously improved and kept up-to-date with developments in the global financial environment. At the same time, IAIS is also focusing on reinforcing its standards, in particular through a comprehensive review of the Insurance Core Principles. Let us await more developments, but the road ahead for insurance supervision does look exciting and global and regional insurance with cross- border operations need to keep an eye on this to be prepared in future.

By the way for those of you in the Insurance firms who are interested to participate, you can sign up as observers to the IAIS proceedings. And, the 16th IAIS Annual Conference is to be held on 21-24 October 2009, at Rio de Janeiro, Brazil.


SaiSai Sireesh is Director of Risk Management & Compliance Strategy & Solutions, Worldwide Financial Services for the Microsoft Corporation.  Mr. Sireesh has over 18 years of global experience across Risk and Compliance Consulting, Financial sector Strategy and blueprints execution.  He has worked in North America, Australia, Singapore, Malaysia, Philippines, Thailand, Indonesia and India, is a regular contributor to the Journal of Regulation & Risk, and has authored several global research studies and articles.

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