IAIS Regime for Insurer Solvency Assessment - ASSAL Conference in Rio de Janeiro - 11May 2007 Yoshi Kawai – Secretary General International Association of Insurance Supervisors (IAIS) Website: www.iaisweb.org IAIS Regime for Insurer Solvency Assessment May 2007 Yoshi Kawai

IAIS Regime for Insurer Solvency Assessment Overview Introduction Common Structure for Solvency Assessment Current Key activities: risk management and internal models IAIS Regime for Insurer Solvency Assessment May 2007 Yoshi Kawai

IAIS Regime for Insurer Solvency Assessment Introduction Project for more consistent, reliable and transparent approach to assessment of insurer solvency from 2005 Ultimate objectives: (1)formulate a coherent risk-based methodology for solvency assessment (2) Address qualitative components of solvency regime: corporate governance and market conduct IAIS Regime for Insurer Solvency Assessment May 2007 Yoshi Kawai

Framework for Insurance Supervision the insurance sector and insurance supervision basic conditions for the effective functioning of financial governance market conduct supervisory assessment and intervention the insurance supervisory authority preconditions regulatory requirements supervisory action LEVEL 1 LEVEL 2 LEVEL 3 May 2007 Yoshi Kawai

Common Structure for Solvency Assessment Risk based solvency regime - solvency regime should address all relevant risks Total balance sheet approach - assessing overall financial position of insurer on consistent measurement of asset and liabilities IAIS Regime for Insurer Solvency Assessment May 2007 Yoshi Kawai

Common Structure for Solvency Assessment (continued) Market consistent valuation of insurance obligations (technical provisions) - insurance obligations should be valued using cash flow models that reflect settlement of insurance obligations and accord with principles that market would expect to be used Role of public financial reporting - methodologies used for regulatory reporting and those for public financial reporting should be consistent IAIS Regime for Insurer Solvency Assessment May 2007 Yoshi Kawai

Common Structure for Solvency Assessment (continued) Sound qualitative requirements - insurers should meet sound governance and market conduct requirements Public disclosure and transparency - insurers should disclose information on assessment of solvency and financial strength IAIS Regime for Insurer Solvency Assessment May 2007 Yoshi Kawai

Current key activities Draft standard on risk management Draft guidance on use of internal models IAIS Regime for Insurer Solvency Assessment May 2007 Yoshi Kawai