The Insurance Capital Standard (ICS) is a consolidated group-wide capital standard that applies to internationally active insurance groups (IAIGs). From 2020 to 2024 (the so-called monitoring period), the International Association of Insurance Supervisors (IAIS) will review the performance of the ICS before it is adopted as a Prescribed Capital Requirement. During the monitoring period, IAIGs will use a reference ICS that includes a Market-adjusted Valuation (MAV) for confidential reporting of their ICS results to group-wide supervisors.
Overview of the MAV
The MAV specifies how IAIGs should value their assets and liabilities as part of the ICS calculation. The MAV is based on audited, consolidated, general purpose balance sheets prepared under Generally Accepted Accounting Principles (GAAP) or Statutory Accounting Principles (SAP). The MAV specifies adjustments to these valuations to minimise artificial volatility of the solvency position of IAIGs that could arise from financial market movements, while meeting the ICS objective of establishing comparable risk-based measures of the capital adequacy of IAIGs.
Financial investments and instruments
- Examples of MAV adjustments to financial investments and instruments:
- Properties and mortgages are adjusted to fair values.
- Deferred acquisition costs are adjusted to zero.
- Loans to policyholders are reported separately and are not offset against insurance liabilities.
- Financial liabilities are not adjusted for an IAIG's own credit standing after initial recognition based on GAAP valuation.
Interaction with other ICS components
The MAV interacts with other components of the ICS such as the capital requirement and capital resources. Certain asset and liability values are used as exposure measures in calculating the ICS capital requirement. The difference between assets and liabilities calculated based on the MAV specifications provides the foundation for determining ICS capital resources.
* This Executive Summary and related tutorials are also available in FSI Connect, the online learning tool of the Bank for International Settlements.