2. Perimeter of the ICS calculation

2.1 Scope for starting ICS balance sheet

• L1-8. The starting point of the ICS is the audited consolidated GAAP balance sheet of the insurance holding company of an insurance group or financial holding company of a financial conglomerate.
• L1-9. Where an IAIG does not prepare audited consolidated GAAP financials, statutory financial statements are aggregated to reflect the group level starting balance sheet.
• L1-10. The audited GAAP balance sheet is split into two components: (1) entities that are insurers, and entities whose purpose is insurance related; and (2) non-insurance entities. The Level 2 text provides further description of which entities are considered insurance related and non-insurance.
• L1-11. The non-insurance entities are reported separately from insurance entities, on a GAAP basis, with the exceptions described in the Level 2 text.
• L2-8. The perimeter of the ICS calculation is defined as including all consolidated legal entities within the IAIG.
• L2-9. The starting point to derive the balance sheet of the insurance group, prior to application of any Market-Adjusted Valuation (MAV) adjustments, is the consolidated Generally Accepted Accounting Principles (GAAP) balance sheet of the Head of the IAIG, as defined in the Common Framework for the Supervision of IAIGs (ComFrame). For entities that do not have consolidated GAAP financials, see paragraph L2-15.
• L2-10. For purposes of the ICS calculation, balance sheets are segregated into insurance related and non-insurance components. The insurance portion of the balance sheet is comprised of entities that meet the following definitions:
  • a. Insurer: Insurance legal entity or insurance group.
  • b. Insurance legal entity: A legal entity, including its branches, that is licensed to conduct insurance, regulated and subject to supervision.
  • c. Insurance related entities: Legal entities that mainly exist to support the operations of the insurer.
• L2-11. Legal entities that comprise the consolidated GAAP balance sheet are further categorised according to the following definitions in order to apply certain accounting treatments that differ from GAAP as well as to derive a capital requirement for non-insurance components:
  • a. Insurer and Insurance related entities;
  • b. Regulated non-insurance financial entity;
  • c. Non-regulated non-insurance financial entity; and
  • d. Non-financial entity.
• L2-12. The ICS follows GAAP accounting rules for consolidation accounting treatment except for the following:
  • a. For insurer and insurance related entities that are determined under GAAP to be controlled as joint ventures , a proportional consolidation method is used unless it is determined through consultation with the group-wide supervisor (GWS) that such treatment is not considered feasible; in which case the entity remains unadjusted and reported as per GAAP as an equity method investment.
  • b. For insurer and insurance related entities that are determined under GAAP to be controlled as joint operations and reported by recognising its own assets, liabilities and transactions, including its share of those incurred jointly, the entity may remain unadjusted (ie proportional consolidation on shared assets).
  • c. For non-insurance financial and non-financial entities that are determined under GAAP to be joint operations and reported by recognising its own assets, liabilities and transactions, including its share of those incurred jointly, the entity is reported as an equity method investment.
  • d. For non-insurance financial and non-financial entities that are determined under GAAP to be joint ventures, the entity is reported as an equity method investment.
• L2-13. Adjustments related to non-voting interest entities :
  • a. A non-voting interest entity that has been determined under GAAP to be unconsolidated is consolidated if either the IAIG or its GWS assesses that it poses a material risk to the group, either individually or in the aggregate.
  • b. A securitisation originated within the group may not be consolidated provided that it meets all of the conditions outlined in Annex 1.
  • c. Notwithstanding the materiality assessment or application of additional criteria, a non-voting interest entity is consolidated when the GWS determines that the nature, scale and complexity of the risks cannot be considered insignificant.
• L2-14. Other non-GAAP adjustments: Structured settlement agreements with third parties are recorded on a net basis (ie removed from reserves and reinsurance recoverables) when the underlying claim is settled and the risk to the non-life company is contingent upon the life insurer (and the guarantee fund, if applicable) having the ability to pay.
• L2-15. Aggregated group balance sheet: an IAIG that does not prepare consolidated or group level financial statements generates a balance sheet on an aggregated basis to reflect group level starting balances.
• L1-12. Non-insurance entities (financial and non-financial) are incorporated into the ICS, based on the entity type and whether or not the entity is subject to a sectoral capital requirement. The capital requirement for financial non-insurance entities is based on the entity’s sectoral capital rules, when available. For financial non-insurance entities without sectoral capital rules and for non-financial entities, the capital requirement included in the ICS is described in the Level 2 text. For all non- insurance entities, capital resources follow the capital resources framework set out for the ICS.

2.2 Development of starting MAV balance sheet

• L1-13. The starting MAV balance sheet is comprised of the insurance and insurance-related entities.
• L1-14. The starting MAV balance sheet is subject to adjustments as described in the Level 2 text and section 3.