The Financial Stability Board has endorsed the higher loss absorbency (HLA) requirement for global systemically important insurers (GSIIs).

The International Association of Insurance Supervisors (IAIS) has completed initial development of the HLA and the basic capital requirements (BCR).

The HLA requirements will apply to all GSIIs from January 2019.

These groups will need to hold qualifying regulatory capital not less than the sum of required capital amounts from the BCR and HLA.

The IAIS says an extra 33% of capital based on the difference between the BCR and the HLA will be phased in over a three-year period from next year.

The HLA required capital formula uses a factor-based approach, based on GSIIs’ exposures.

The new requirements also assign a rating – low, mid or high – depending on a GSII’s systemic risk.

The IAIS does not expect any GSIIs will fall into the “high” category, and this will act as a disincentive to increase systemic risk.

IAIS Executive Committee Chairman Felix Hufeld says the association has reached “a major milestone in its commitment to address risks to the global financial system” from GSIIs.

“The IAIS considers a sound capital and solvency framework for the insurance sector to be essential for supporting financial stability,” he said. “We look forward to completing our next goal of developing ComFrame as a comprehensive, group-wide supervisory and regulatory framework for internationally active insurance groups.”

Globally systemically important insurers are AIG, Allianz, Aviva, Axa, Generali, MetLife, Ping An, Prudential Financial and Prudential.