“The IAIS–with its mission to promote effective and globally consistent supervision of the insurance industry and to contribute to global financial stability–has an essential role in fulfilling these objectives,” McRaith adds.

Such a directive was anticipated, but it was not clear whether it would be developed within the ComFrame project or not. The ComFrame project, begun in 2010, applies to IAIGs.

The IAIS was instructed in a broad insurance supervisory policy directive by the G-20's Financial Stability Board (FSB) to develop “a work plan to develop a comprehensive, group-wide supervisory and regulatory framework for Internationally Active Insurance Groups (IAIGs), including a quantitative capital standard” by the end of the year.

The IAIS release today did not mention the word “quantitative.”

The standard is not necessarily a feared high-level capital requirement and leaves open room for jurisdictions to allow insurers to develop their own solvency management systems and models governing under certain rules, possibly with some minimum capital floor.

However, the process will be fortified by discussions of the requirements for insurers and reinsures that have been or will be deemed to be systemically important globally.

Dave Snyder, international supervisory vice president with the Property Casualty Insurers Association of America questioned the very foundation of this project. He said there no evidence that this direction is needed, and no benefit to consumers has been shown.

Snyder said if the wrong standards are implemented, they could lead to systemic risk within the industry “that does not now exist within our sector,” by creating one model that does away with the “diversity of our regulation and diversity of our business models,” which acts to spread risk.

NAIC CEO Ben Nelson, adds, “Although U.S. state insurance regulators continue to have serious concerns about the timing, necessity, and complexity of developing a global capital standard given regulatory differences around the globe, we intend to remain fully engaged in the process to ensure that any development augments the strong legal entity capital standards in the U.S. that have provided proven and tested security for U.S. policyholders and stable insurance markets for consumers and industry.”

In addition, starting in 2014, the IAIS will also develop backstop capital requirements to apply by the end of that year for global systemically important insurers (G-SIIs), whose designees include AIG, MetLife and Prudential Financial domestically, and Axa, Allianz, Aviva, Prudential plc in the U.K., Ping and Assicurazioni Generali S.p.A.

These backstop requirements would serve as the foundation for higher loss absorbency requirements, coming in 2019, for the G-SIIs. The IAIS anticipates this development and testing will also be used for development of the capital standards for the IAIGs.

An IAIG, according to the IAIS, is not quite a G-SII. The insurer must have premiums written in not fewer than three jurisdictions, with not less than 10% of the group's total gross written premium in foreign countries and must have total assets of not less than$50 billion of gross written premiums of $10 billion. The IAIS expects that approximately 50 IAIGs will be identified by supervisory colleges.

The IAIS says IAIGs need tailored and more coordinated supervision across jurisdictions due to their complexity and international activity. This requires a specific framework and coordination of supervisory activities under the aegis of a group-wide supervisor, the IAS has said.

Fundamentally, ComFrame is intended to be a comprehensive, well balanced framework that focuses equally on both quantitative and qualitative elements, and the IAIS emphasized in its original documents that “ComFrame is not intended to be a collection of overly prescriptive, narrowly defined approaches. On the contrary, ComFrame will be outcome-focused and, whilst it will not be rules-based, its requirements will be accompanied with specific parameters and specifications.”

The IAIS says ComFrame has always included a capital component within its solvency assessment. This component, which is being finalized in concept, will be used as a starting point for development of the capital standard.

U.S. states can adopt these standards state by state. The FIO, NAIC, the Federal Reserve as it gains IAIS membership, and IAIS observers, are all expected to work together on these standards.

Stef Zielezienski, general counsel for the American Insurance Association, said the development of a global insurance capital standard should “take a well-reasoned and risk-focused approach to capital assessment that can be applied consistently to internationally active groups without compromising their ability to compete. We will be anxious to see how an insurance capital standard evolves and how it aligns (or does not align) with [other ComFrame ] workstreams and different jurisdictional regulatory structures.”

NAIC staffer Elise Liebers now heads the IAIS Financial Stability Committee and stated that “a risk based capital standard for global insurance groups has been established as a priority for the IAIS as part of its work to promote financial stability.” The NAIC has railed against FSB directives recently, worrying it is guiding the IAIS into a banking supervisory realm. Two state insurance commissioners–Kevin McCarty of Florida and Tom Leonardi of Connecticut–are on the IAIS executive committee.

A spokesman for the Federal Reserve Board in Washington said the agency had no comment on the IAIS initiative at this time.

A spokesman for Rep. Randy Neugebauer, R-Texas, chairman of the Housing and Insurance Subcommittee of the House Financial Services Committee, reiterated comments Neugebauer made at a hearing on the issue in June. Then, Neugebauer said a bank-like model for insurance regulation favored by the IAIS “could disproportionately impact U.S. insurance policyholders and insurers.”

“Given the uniqueness of our regulatory model, this proposal has a potential to increase the cost for U.S. insurers which would be borne by the policyholders themselves,” Neugebauer said.

John H. Fitzpatrick, secretary general of The Geneva Association and an AIG board member stated that while the association of global insurers remain committed to working with standard setters such as the IAIS on important initiatives, “it is clear that there will be significant challenges to the creation of a global capital standard for insurers, particularly within the timeframe proposed. We acknowledge that the IAIS may need to take incremental steps towards achieving this overall goal.”