The world of group supervision for South African insurers is surprisingly immature for regulations that have been in place for 6 years. [All of this post applies as of May 2024. Regulations may have changed between then and the time you are reading this.]

I started this journey investigating Insurer Capital Standards (ICS) as a small part of a 2024 presentation on developments in solvency regulations around the world.

The full slide deck is available, but here are some key takeaways:

Q: Is ICS only relevant for Internationally Active Insurance Groups?
A: Yes, but actually also likely no. It may influence other group reporting requirements, your non-South African subsidiaries, and possibly even calibration of solo reporting. Japan and South Korea and Taiwan have adopted modified versions of ICS as a local requirement already.

Q: Will ICS replace SAM Group reporting?
A: Too soon to tell. Several options here for individual country regulators, and plenty of competing interests. International consistency, local consistency, duplicated effort, better specification.

Q: Did a senior actuary really say (about group reporting) “We’re all just really making it up?”
A: Yes, and they’re correct! No, I’m not going to name them… ICS is generally thought to be better specified for groups purposes than Solvency II or SAM.

Q: What does Solvency II, ICS and SAM Group Reporting say about reinsurance from non-equivalent jurisdictions?
A: Many, quite different things. This is an area of current mis-application in group reporting. The FSGs and FSIs are fairly clear, but probably don’t give meaningful results. Application varies from insurer to insurer.

Q: Which government bonds can be treated as risk-free?
A: FSG/FSI: only South African (not necessarily widely applied, but again the standards are clear.) Solvency II: only European bonds do not attract a credit capital charge (definitely for standard formula, but I have heard different things for internal model firms) ICS: all government bonds treated as risk-free. (I understand why…. but wow.)

Q: How does currency risk work for groups? Does it depend on AC vs A&D?
A: This has been clarified or changed for Solvency II as part of the review. In general, it applies to net exposures relative to reporting currency. It may mechanically be more intuitive for AC, but does actually apply for A&D too.

At a minimum, the contribution to group surplus/deficit Own Funds (in excess of, or the deficit where Own Funds don’t cover the SCR), should be shocked for currency risk. This makes sense as soon as you think about what the risk to the group’s SCR cover is on currency depreciation. (Where there is a deficit, foreign currency appreciation is the risk, not depreciation. The opposite is true – and more intuitive – when there is a deficit.)

The final answer is that ICS will likely not be applied to everyone in South Africa, but it may inform the development of SAM group reporting. It may also be the basis of choice for subsidiaries in other jurisdictions. ICS is probably more relevant than you thought.