Insurance Key Attributes Assessment Methodology sheds light on FSB’s assessment criteria for the insurance sector

On 25 August 2020, the Financial Stability Board (FSB) published the Key Attributes Assessment Methodology for the Insurance Sector (Insurance KAAM), which clarifies the criteria for assessing a jurisdiction’s insurance resolution framework against the FSB’s Key Attributes of Effective Resolution for Financial Institutions (Key Attributes) published in 2014.

The Key Attributes provide an “umbrella” standard for resolution regimes for all types of financial institutions.  However, as not all attributes are equally relevant to all sectors and some require adaptation and sector-specific interpretation, it has led to the FSB publishing the Insurance KAAM.  The Insurance KAAM is designed to guide the assessment of a jurisdiction’s compliance with the Key Attributes with respect to the insurance sector and promote consistent assessments across jurisdictions.

The assessment methodology in the Insurance KAAM sets out for each individual key attribute:

• a set of essential criteria specific to the insurance sector that the assessors should use to assess and grade compliance with the key attribute, and
• explanatory notes which provide examples, explanations and cross-references to other relevant key attributes to guide the interpretation of the key attribute and the essential criteria.

A four-grade scale will be used for assessments – a jurisdiction will be graded as “Compliant”, “Largely Compliant”, “Materially Non-compliant”, or “Non-compliant” for any given key attribute depending on the extent that it is able to comply with the essential criteria.

As you would be aware, under the Hong Kong Financial Institutions (Resolution) Ordinance (Cap. 628) (FIRO) which came into operation on 7 July 2017, the Hong Kong Insurance Authority (the IA) is vested with a range of necessary powers to effect the orderly resolution of non-viable systemically important financial institutions in Hong Kong that are in the insurance sector.

An insurance sector entity means (i) an authorised insurer that is a global systemically important insurer (G-SII) as published by the FSB; or (ii) a financial institution designated by the Financial Secretary as a within scope financial institution for which the IA is designated as the resolution authority under section 6 of the FIRO.  In terms of application, the FSB has suspended the designation of G-SIIs from the beginning of 2020 and the Financial Secretary has not yet designated any financial institution as a “within scope financial institution”.

This suggests it is still early days and whilst clarity for how the Key Attributes will apply to the insurance industry is likely to follow over the coming months and years ahead, at this stage, the Insurance KAAM should be factored into future plans.  The FSB has published a note explaining the application of the Insurance KAAM and the Key Attributes during the period of suspension of the designation of G-SIIs which is likely to help insurers prepare for any future developments in this regard.

In Hong Kong, we expect that the IA will work with the Hong Kong government and other resolution authorities (primarily the Hong Kong Monetary Authority) to maintain a close liaison in the formulation of regulations and rules to be made under the FIRO as well as in the implementation of resolution planning requirements.  As at the date of this post, there has been no announcement of steps taken by either the IA or the HKMA in response to this update.