26 July 2013

CRE: Enhanced regulation of nine named GSIIs receives cool reception

A number of insurance associations in the US and Europe have reacted negatively to plans to regulate nine 'globally systemically important insurers' (GSIIs), branding the move premature and inappropriate.

Although delayed, The Financial Stability Board (FSB) last week finally named nine insurers as GSIIs, and therefore rendered them subject to additional regulation being developed by the International Association of Insurance Supervisors (IAIS).

The initial list (updated each year in November from 2014 onwards) included European insurers Allianz, Axa, Aviva, Generali, and Prudential plc, as well as US-based AIG, MetLife and Prudential Financial. The only Asian insurer on the list was China-based Ping An Insurance.

To coincide with the publication of the initial list, the IAIS issued the new rules that will apply to GSIIs, including additional capital requirements, enhanced group-wide supervision and recovery and resolution plans, commonly referred to as living wills. Similar requirements are already being applied to 29 banks identified by the FSB as a systemic threat to the world's financial system.

The nine insurers already identified will immediately be subject to enhanced group-wide supervision and have until the end of 2014 to meet the recovery and resolution planning requirements. Initially the insurers will need to meet a simple backstop capital requirement until the as-yet developed capital requirements are implemented from January 2019.

Most of the nine insurers acknowledged their designation as GSII, although none welcomed the news and several continue to argue that they do not consider themselves a systemic threat. Allianz said that it did not present a systemic risk, while Generali said that it is disposing of non-core assets, the size of which were cited as a factor in its GSII designation.

Although most insurance bodies recognise the merits of addressing systemic risk, the majority were critical of the plans, in particular the application of rules developed for banks and a focus on size in the selection criteria.

Ratings agencies also responded to the publication of the list and methodology, suggesting that the implications of GSII status would be mixed.

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