IAIS sets out new report on LIBOR transition
The International Association of Insurance Supervisors (IAIS) recently published its report “Supervisory issues associated with benchmark transition from an insurance perspective” sharing findings and recommendations from a survey conducted amongst IAIS members. The report focuses primarily on LIBOR transition, given its predominant global role and the short remaining period for transition.
Developed in close cooperation with the Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS), the IAIS report contributes the insurance perspective to their report on issues associated with benchmark transition. The IAIS report is included as an annex to the FSB-BCBS report to be delivered to the G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 18 July.
“As the industry shifts away from reliance on LIBOR, the IAIS’ recommendations will help insurance supervisors assess and take appropriate action on transition risk, in support of global financial stability. The IAIS will continue to work closely with the FSB and other standard setting bodies in facilitating this transition,” said Vicky Saporta, IAIS executive committee chair.
A distinct feature of benchmark transition risk in the insurance sector is that insurers may be exposed on both sides of their balance sheet – for instance on the asset side through investments linked to LIBOR or, on the liability side, through regulatory valuation methodologies that reference benchmark rates.
Continued reliance of financial markets on LIBOR poses clear risks to global financial stability. Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial institutions across many jurisdictions.
The IAIS report encourages insurance supervisors to strengthen their efforts in facilitating insurers’ transition away from LIBOR. It also sets out supervisory recommendations for supporting LIBOR transition, consistent with those contained in the FSB-BCBS report, namely:
- Enhancing identification of transition exposure and remaining transition challenges;
- Supporting facilitation of LIBOR transition; and
- Stepping up supervisory cooperation and coordination.
The wider implementation of the recommendations by insurance supervisors aims to facilitate a more effective and coordinated transition globally.
The IAIS and its members are committed to supporting the FSB-BCBS proposed next steps in further assessing transition progress and monitoring the evolving impact of the Covid-19 pandemic on benchmark transition.
