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Insurance Capital Standard 2.0: A path to regulatory transformation

Sweeping regulatory changes are happening worldwide in risk management. With the imperative to standardize finance for the stability of the global economy – crucial in the wake of COVID-19 and growing climate risks – regulators are intent on creating greater transparency in the financial services industry. 

There are many examples of this regulatory sea change. Insurance accounting standards are reconfiguring stateside with LDTI and globally with IFRS 17. The banking sector has been transformed by IFRS 9 and CECL, and institutions around the world may soon be held to climate reporting frameworks such as the TCFD or the CDSB.  

Enter the Insurance Capital Standard, or ICS 2.0, a regulatory transformation for the insurance industry. As part of the ComFrame, a new supervisory common framework for insurers, ICS 2.0 will standardize group capital requirements worldwide. Its uniform framework and reporting requirements will enable insurers, regulators and supervisors alike to better assess the financial solvency of Internationally Active Insurance Groups (IAIGs). 

While the journey to meeting ICS 2.0’s regulatory requirements is a steep mountain path, with great challenge comes great opportunity – and, potentially, great reward. In readying their organizations for compliance, insurers can drive greater organizational unity, workflow efficiency and data-rich insights that confer a distinct competitive edge. 

Creating a common methodology: the objectives of ICS 2.0 

Currently, comparing solvency solutions within and across regions or countries – in all their legal and financial variety – is an impossible task for large insurance groups. In standardizing group capital requirements using a common methodology, ICS 2.0 will enable comparable results across different jurisdictions, driving five primary benefits:  

  • Protecting policyholders.  

  • Promoting financial stability – amongst individual insurers and industry-wide.   

  • Reflecting all material risks to which an insurer is exposed.   

  • Fostering comparability across regions.  

  • Striking a balance between risk sensitivity and simplicity.  

ICS 2.0 represents a significant step in the implementation of sound, risk-based supervisory frameworks, leveling the global playing field and boosting insurers’ competitiveness. Long before its 2025 implementation deadline, the ICS is already influencing the development of supervisory frameworks throughout the world.   

Like other insurance regulations, ICS 2.0 demands a more comprehensive approach to risk management. Insurance groups must anticipate the regulatory and risk changes ahead and address them efficiently and proactively. 

Insurers who have the systems and processes that help them adapt swiftly to change will realize significant competitive advantages, including lower compliance costs, less intrusive regulatory supervision, and greater peace of mind for their executives and board members.    

Beyond compliance: choosing the right reporting model to maximize profitability 

Although ICS 2.0’s mandates are limited to IAIGs, all insurers stand to benefit from applying ICS 2.0 capital standards as a means to achieve true risk-based measures for capital adequacy. New insurance solvency and capital standards can help prevent insurers big and small from becoming over-leveraged or otherwise risking insolvency.  

The monitoring phase began in January 2020, leaving insurers to make a critical decision: which reporting model to align with. During this period, the IAIS will allow insurers to create their balance sheets according to two different valuation methods: the market-adjusted valuation approach (MAV), in line with Solvency II, or the GAAP Plus. 

Implementation of ICS 2.0 as a group-wide prescribed capital requirement will begin in 2025. ICS 2.0 imposes the MAV as standard method for calculating capital requirements, but insurance groups can also report according to the GAAP Plus valuations or even to internal models if they so choose.  

In larger insurance groups (i.e., those with much bigger and more complex organizational structures across multiple regions and lines of business), the adoption of an internal model might be a more appealing option. Although the regulatory requirements for internal models are even more strict than for the standard approach, the investment may pay out in the long term by populating more insights on risk exposure for each portfolio, business line or even product group – all of which could lead to greater profits.  

Benefits for businesses and consumers 

ICS 2.0’s upsides will echo not only for insurers, but for policyholders, as well. Regulations will impact both domestic and international insurers, influencing the commercial premium for companies and consumers. With more uniform information, businesses and consumers alike will be able to evaluate potential insurers by the same worldwide KPIs, enabling more informed decision making. 

Furthermore, the worldwide validity of ICS may motivate non-IAIG insurance companies (i.e., those based in locales without formal solvency regulation) to voluntarily adopt them, ultimately reducing risk for policyholders. Countries including Taiwan, Japan and Malaysia have also used ICS as a base standard as they look to upgrade their current insurance capital regimes. 

Overcoming common obstacles 

IAIGs face distinct obstacles in their efforts to meet ICS 2.0 deadlines. Insurers will have to embed new solvency capital models, data management processes and reporting systems into day-to-day business, across multiple business lines and subsidiaries – no easy feat.  

Today, most insurance companies must evolve from working in factions to working cohesively to establish a regulatory regime. In many insurance organizations, actuaries and accounting staff work mostly in isolation from one another, focused on different aspects of the business. ICS 2.0’s reporting demands will require cohesion between these departments – and IT will need to implement both views. The most organized insurers will gain the greatest competitive edge in the post ICS 2.0-world. 

Another hurdle insurers frequently face? A fragmented IT infrastructure filtering data from stratified sources and systems. Generally, the fix is to streamline solutions and converge sources. It can be tempting to invest in every possible platform and technique available to meet the challenge of ICS 2.0, but using as few solutions and tools as possible to source and process the required data is a best practice. Integration and consolidation are key. 

Regulation fueling transformation 

To meet ICS 2.0 requirements, insurers should take a comprehensive approach, from data sources to reporting. Risk and finance calculations and reporting should ideally be implemented on the same platform, ensuring consistency and comparability in data and easing reconciliation of results. Insurers who undertake compliance on a single platform see much closer collaboration among actuaries, accounting staff and IT. This requires an organized and auditable workflow to minimize operational errors and operational risk.   

For insurers just starting their ICS 2.0 readiness journeys, gradual implementation is the way to go. Beginning with a less mature process and model set leaves room to grow and evolve to an advanced process and model set that applies across an organization’s insurance liabilities portfolio.  

Wherever an insurer falls in their analytic maturity or basic ICS 2.0 readiness, compliance should be viewed less as a finish line than as an incentive to restructure for greater efficiency and profitability. An end-to-end solution approach can provide a comprehensive risk analytics framework for better risk decision-making through higher-quality data, advanced analytics, faster internal and regulatory reporting, and transparency and audibility. 


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Oana Avramescu

Oana Avramescu

Global Insurance Solution Lead


Member since

15 Aug 2022



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