'Irrational' ICS charges may stop US insurers selling long-term products

Published in: Risk, Risk management, Capital management, Regulation, People, USA focus

Companies: Protective Life Corporation

The International Association of Insurance Supervisors’ (IAIS) insurance capital standard (ICS) could lead US insurers to stop selling insurance products due to ‘irrational capital charges’.

This is the warning from Michelle Moloney, chief risk officer at Protective Life Corporation.

“The ICS is a series of measurements that include numerous charges for the same risks, leading to multiple layers of conservatism,” said Moloney. “The non-economic metrics are worse for North American life and annuity products because our product guarantees are longer-term in nature. If companies must manage business to ICS, they will stop selling products with unreasonable capital metrics such as life insurance and pensions.”

Moreover, the ICS rules, which are due to enter a five-year monitoring period next year, incentivise a “trading-oriented” view because they overlook the development of risk over long-term products and do not capture “true economic exposure.”

This, in turn, could result in distorted risk measures and non-economic volatility, which will undercut the ability of risk officers and supervisors to manage risk and minimise inappropriate pro-cyclical behavior, according to Moloney.

“It is suprising to me that with all the risks our industry is confronted with, we limit our ability to effectively manage the ones we should,” said Moloney.

She added: “The IAIS is trying to fit the average, but because no one is average they are satisfying no one. Furthermore, the true cost will be borne by our customer. Global standards must not discourage use of sound risk management practices, such as ALM currently employed by the sector, or adversely impact the ability for insurers to serve as key market stabilizers, particularly in times of stress. We encourage decision makers to take these issues into consideration as they move forward.”

Moloney will discuss key CRO risks at the Insurance ERM Americas 2019 conference in New York on 16 September. More information on the conference can be found here. 

Join over 250 re/insurer chief risk officers, chief actuaries, chief investment officers, as well as ERM directors and regulators, at InsuranceERM Americas on 16 September in New York for new perspectives on risk and capital management.

There will be a diverse mix of experienced insurance risk professionals across different business lines.

Click here to register or to view the agenda and full speaker line-up

This event is part of the annual ERM Insurance conference which features three separately bookable tracks:

Sarfraz Thind