The IAIS released for public consultation on November 9, 2020 the Development of Liquidity Metrics: Phase 1 – Exposure Approach. The paper consults on one metric, the Insurance Liquidity Ratio (ILR), that the IAIS has developed as an ancillary indicator for the monitoring of liquidity risk as part of its assessment of systemic risk in the insurance sector. Ancillary indicators are used in the context of individual insurer monitoring to highlight potential vulnerabilities, risk drivers and trends. The input received on this consultation will help inform the future development of the ILR and other liquidity risk metrics. Following a series of discussions with the Insurance Working Group (IWG), the IIF submitted its response to the IAIS on February 5, 2021.
In its response, the IIF reflected some of the concerns raised by IWG members about the usefulness of the ILR as an effective macroprudential tool. The IIF encouraged the IAIS to consider the inherent limitations of any global liquidity ratio for the insurance sector, and to more fully develop a use case for a ratio similar to the ILR. In addition, we urged the IAIS to consider an alternative approach that would focus instead on supervisory review, which would provide a more company-specific and holistic reflection of the robustness of the insurer’s liquidity risk management. The IIF welcomed future opportunities to expand upon its response, and encouraged the IAIS to convene a stakeholder meeting on the important issues raised by this consultation, as well as on broader aspects of macroprudential supervision and systemic risk.