ICS will be 2024’s hot topic for insurers: Fitch Ratings

The International Association of Insurance Supervisors (IAIS) is currently assessing the economic impact of the standard.

The finalisation of the Insurance Capital Standard (ICS), a new global solvency standard for internationally active insurance groups, will be the most significant regulatory development for global insurers in 2024, Fitch Ratings predicts.

The International Association of Insurance Supervisors (IAIS) is currently assessing the economic impact of the ICS, following the closure of a public consultation on its status as a prescribed capital requirement (PCR) on 21 September 2023. 

The ICS is expected to be effective by the end of 2024.

The ICS aims to bring about greater alignment in capital standards for globally active insurance groups, although achieving a global standard agreeable to all jurisdictions is challenging. 

While many jurisdictions have adopted frameworks similar to Solvency II, which the ICS broadly resembles, the United States is pursuing a different approach involving an aggregation method for calculating insurance group capital. 

The IAIS is evaluating whether this approach is equivalent to the ICS.

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Fitch Ratings does not anticipate a significant deviation in regulatory capital requirements due to the widespread adoption of Solvency II-like frameworks and the expected flexibility to accommodate national market specifics, including the US aggregation method. Consequently, the ICS is likely to have a neutral impact on ratings and may not result in fully consistent group capital calculations.

In addition to the ICS, another crucial regulatory development in 2024 will be the implementation of IFRS sustainability disclosures. 

The International Sustainability Standards Board finalised reporting templates for these disclosures in June 2023. Insurers will be required to disclose the financial significance of climate-change risks in their annual reports starting from 1 January 2024. 

These disclosures will further emphasise the growing influence of environmental, social, and governance (ESG) considerations on insurers' underwriting and investment strategies.