ComFrame: Group-Wide Insurance Supervision with an International Flavor
On July 1, 2011, the International Association of Insurance Supervisors (IAIS) issued its first exposure draft of the Concept Paper on the Common Framework for Supervision of Internationally Active Insurance Groups. The title is long enough to make you feel uncomfortable, but thankfully, its abbreviated name is ComFrame. The release of the Concept Paper is the first milestone in its three-year development phase to be completed by mid-2013.
On the surface, one might wonder what’s the big deal about supervising internationally active insurance groups? Haven’t we been supervising insurance companies for decades already? Isn’t supervising internationally active insurance groups simply an expansion of our domestic supervision approach to an international level?
Well, it’s not that simple. With different jurisdictions come different regulatory requirements, different supervisory practices, different accounting practices and financial reporting frameworks, different products—and oh, we almost forgot, different languages and cultures. Mix it all up … and you have an internationally active insurance group.
ComFrame is built on the premise that internationally active insurance groups, the most complex insurance groups, can be supervised in a collaborative fashion by home and host supervisors, thereby resulting in more effective and efficient supervision. Because of the diverse nature of insurance supervisory practices among jurisdictions, ComFrame is focused on finding areas of commonality among home/host supervisors. While not rules-based, ComFrame is striving toward building specific supervisory requirements to foster supervisory convergence.
As an introduction to the Concept Paper, it is composed of five primary workstreams called “Modules.” Each Module is further broken down into elements that are prioritized for purposes of development and exposure.
Module 1 covers Scope of Application, essentially establishing criteria for what qualifies as an internationally active insurance group for purposes of ComFrame. Module 2 covers Group Structure and Business, which lists requirements for the assessment of legal and management structures, assessment of intra-group transactions, contingency planning, and approaches for policyholder protection schemes. Module 3 relates to Qualitative and Quantitative Requirements with specific elements covering corporate governance, enterprise risk management, assets and liabilities, valuation, and capital adequacy. Module 4 covers Supervisory Cooperation and Interaction with specific elements covering principles for coordination and interaction, identifying group-wide supervisors and their roles, use of supervisory colleges, supervisory process and review, reliance and recognition, crisis management, supervisory reporting, and public disclosure items. Module 5 covers Jurisdictional Matters and is primarily concerned with the applicability of ComFrame to IAIS jurisdictions.
We invite you to read the Concept Paper on ComFrame not as a cure for your insomnia, but as an opportunity to understand the current thinking among international supervisors on how to better supervise internationally active insurance groups. The Concept Paper has potentially controversial sections, such as internal models and capital requirements. It is a mere 154 pages and is not close to completion. By way of contrast, the NAIC’s Financial Condition Examiners Handbook for conducting on-site examinations is 400 pages long and cannot be read in one sitting.
The deadline to comment on the first phase Concept Paper was August 31, 2011. Indicative of the importance of this project, IAIS members, observers and the public submitted over 300 pages of comments. Following the completion of the three-year development phase, we enter into the “calibration phase” which consists of an impact assessment on implementation of ComFrame. As ComFrame is expected to evolve over time, we will comment in more detail in later articles … at this juncture, we just want to whet your appetite.