Supervisors across jurisdictions set 2024 priorities for insurers

As the insurance sector continues to grow in impact and complexity, the regulatory landscape is being reshaped. Supervisors across jurisdictions are tackling prudential and operational risks, responding to emerging threats, such as climate change and cybercrime, and addressing key themes in insurance, such as digital innovation.

Insurers should keep track on upcoming regulatory developments in these areas and their implications for the industry.

This article highlights key changes in supervisory priorities for 2024 across jurisdictions that may have financial, operational and compliance implications on insurers.

1.     Global:

·     The Financial Stability Board’s (FSB) work program for 2024 subjects insurers to resolution planning standards.

·     By December 2024, the FSB will publish a list of insurers subject to resolution planning standards set out in the Key Attributes of Effective Resolution Regimes (KAs). Jurisdictions should apply these standards to all insurers that home authorities assess to be systemically significant or critical upon failure. Insurers in scope will be subject to regular resolvability assessments and recovery and resolution planning. They should identify their critical functions and maintain them in recovery and resolution scenarios.

·     Across sectors, the implementation of the global frameworks for crypto assets and global stablecoin arrangements will proceed. FSB will lay out financial stability implications of tokenization and artificial intelligence (AI) and enhance cyber resilience by streamlining incident reporting. In addition, climate-related financial risks will be addressed.

• The International Association of Insurance Supervisors’ (IAIS) 2024 roadmap addresses prudential risks and key strategic themes in the insurance sector.

·     The global Insurance Capital Standard (ICS) will establish a prescribed capital requirement (PCR) for Internationally Active Insurance Groups (IAIGs), with adoption anticipated by December 2024. The IAIS will also assess whether the Aggregation Method (AM) developed by the United States (US) provides comparable outcomes to the ICS. If deemed comparable, the AM approach will be considered an “outcome-equivalent approach” for implementation of the ICS as a group-wide PCR.

·     The revised versions of the Insurance Capital Standards (ICPs) 14 and 17 will be adopted by the IAIS in December 2024 and the IAIS will develop ancillary indicators on credit risk, reinsurance and derivatives. Continued focus on monitoring structural shifts (e.g., greater allocation of capital to alternative assets, increased reliance on cross-border asset-intensive reinsurance) in the life insurance sector is expected.

·     In 2024, the IAIS will address key strategic themes in insurance: An application paper on climate risk is scheduled for finalization end of 2024. Insurers can also expect supervisory responses on how diversity, equity and inclusion (DEI) will influence their governance, risk management and corporate culture and how expectations for fair treatment of customers can be implemented. Additional themes include digital innovation, financial inclusion, operational resilience, recovery and resolution, risk-based solvency, cyber risk and natural catastrophe protection gaps. 

2.     United States: The National Association of Insurance Commissioners (NAIC) will concentrate on climate risks, financial oversight and privacy protection.

·     Regarding climate risks, NAIC will create new resilience tools, advocate for pre-disaster mitigation funding and develop scenario analysis resources for state regulators.  

·     The Framework for Insurer Investment Regulation will improve financial oversight by reducing reliance on credit rating providers, while the Asset Adequacy Testing Framework will bring greater transparency to the assessment of cash flows for insurers’ structured securities holdings.

·     In 2024, NAIC will propose a framework for overseeing third-party data and predictive models and complete the development of a cybersecurity event response plan. Meanwhile, state insurance regulators aim to safeguard consumers’ data from technologies (e.g., AI) through enhanced privacy protections.

3.     Canada: A new supervisory framework with a focus on risk ratings will guide the supervision of federally regulated financial institutions (FRFIs) and private pension plans and will be launched on 1 April 2024.

4.     European Union (EU): The supervision of insurers and pensions 2024 is driven by policy work for numerous legislation initiatives and climate change.

·     EIOPA is expected to deliver policy work and implementation for several legislative initiatives including Digital Operational Resilience (DORA), the Solvency II Review, the Insurance Recovery and Resolution Directive (IRRD), the European Single Access Point (ESAP), the AI Act, the Cyber Security and Information Security Regulations, and the Retail Investment Strategy.

·     EIOPA also plans to integrate ESG risks into prudential frameworks of insurers and pension funds and address natural catastrophe protection gaps.

5.     United Kingdom: Supervision will address prudential and operational risk in 2024.

·       In 2024, a system-wide exercise will explore how insurers interact with other financial institutions under stressed conditions. In addition, stress tests on credit and liquidity risks for life and general insurance will be held in 2025. Changes to the Solvency UK regime are expected in 2024 and in general insurance monitoring of cyber risk, claims inflation and internal models will continue.

·       By no later than March 2025, insurers must meet operational resilience expectations. Insurers should improve their scenario analysis capabilities and embed climate risk within their risk appetite statements.

·       The implementation of the Consumer Duty will continue to be a priority in 2024. The FCA has made clear the duty is not a "once and done event" but needs to become a fundamental part of firms' culture. Insurers need to comply with new rules for open and closed products by 31 July 2024 and must assess whether their products provide fair value to their customers. Firms can expect various monitoring and testing exercises to take place in 2024.

6.     Asia-Pacific: Asian supervisors have not (yet) published 2024 supervisory priorities for insurance, but some supervisors are tending to stricter risk-based capital (RBC) regimes.

·       Hong Kong recently consulted on the implementation of a revised RBC regime which would require insurers to implement new quantitative processes to calculate and forecast their portfolio.

·       Singapore recently amended its RBC regime for insurers, just after raising capital requirements on domestic systemically important insurers (D-SIIs). A revised D-SII framework, effective 1 January 2024, seeks to identify insurers, whose distress would cause significant disruption to Singapore’s financial markets, based on their size, interconnectedness, substitutability and complexity. 

You may want to follow our Quarterly updates on Global financial services regulatory developments to stay up to date in these priority areas.

The views reflected in this article are views of the author and do not necessarily reflect the views of the global EY organization or its member firms.