View from the Top: 2013's regulatory outlook

2013 has so far been a bumper year of insurance regulatory change, at the local jurisdictional level across Asia. We can expect this to continue into the second half of the year.

The next few months are expected to bear witness to a significant shift change in the regulation of insurance groups, with perhaps a global insurance capital standard not too far away.

Drivers of local jurisdictional change
As is now relatively well known, the International Association of Insurance Supervisors- the world's insurance standard setter - introduced a new suite of Insurance Core Principles in October 2011. The majority of insurance regulators in Asia Pacific will need to implement these ICPs over the course of the next few years, which has been a key driver behind a significant step-up in the pace of major regulatory programmes in recent months.

To illustrate this in the area of risk and capital regulation, 2013 has seen the implementation of Australia's LAGIC regime, the release of ERM and Own Risk Solvency Assessment standards in Singapore, and an overhaul of the reserving and capital rules in Indonesia. Still to come in 2013, we will see ongoing development of China's next-generation China Risk-Oriented Solvency System risk-based capital and ERM regime, and development towards Hong Kong's own risk-based capital framework.

Conduct of business
In the conduct of business regulatory arena, the Australian Future of Financial Advice reforms became mandatory on 1 July 2013, Singapore is consulting on a set of recommendations by the Financial Advisory Industry Review Panel, and Hong Kong has recently updated sales requirements of Investment Linked Assurance Scheme products.

These reforms are expected to have a significant impact on the provision of financial advice, the allowability, level and structure of commission payments to agents and IFAs, and the design and structure of investment-type products - if they follow similar experiences to the UK's Retail Distribution Review.

We should not forget that changes in insurance regulation in jurisdictions outside of Asia can have a significant impact on the form of regulation in Asia. For this reason, Asian jurisdictions that modelled their current risk based capital systems on the US system will be keen to keep track of changes under the US Solvency Modernization Initiative, and of course will have an eye on European Solvency II developments.

A global insurance capital standard?
Aside from local regulatory change, arguably the greatest focus of the world's insurance and financial services policy makers is on group-wide supervision.

The IAIS Common Framework initiative is set for the release of its next draft later in 2013. ComFrame is focused on a set of insurers - termed Internationally Active Insurance Groups - that will be principally larger insurance groups that operate material businesses in multiple jurisdictions, and will play an important role in setting standards for the sophistication and level of integration of regulation across an insurance group. The IAIS is expecting approximately 50 IAIGs to be identified in due course, meaning that many insurers that operate in Asia will surely come under its remit.

One of the interesting aspects of ComFrame is that it paves the way towards a global insurance capital standard - remembering of course that insurance regulatory capital standards are currently jurisdictional-specific, which is different to the banking industry where the Basel framework is global in nature.

"One of the interesting aspects of ComFrame is that it paves the way towards a global insurance capital standard."

Recent developments relating to systemic risk policy at the Financial Stability Board may well have accelerated the development of the first global insurance capital standard. Alongside the imminent announcement, expected in July 2013, of the set of Global Systemically Important Insurers and the set of additional regulatory requirements focused on systemic risk this will bring, the IAIS has been tasked with developing a straightforward, backstop set of capital requirements by the time of the G20 Summit in 2014.

This means that we are likely to see the first global insurance capital standard in 2014. This would be a major regulatory development that insurance groups in particular should be following very closely.

Martin Noble (pictured) leads the insurance stream of KPMG's global Financial Services Regulatory Center of Excellence for the Asia-Pacific region