07 September 2012

Risk.net: Bernardino calls for strong capital principles in global insurance framework

Speaking at a conference on global insurance supervision, Bernardino said that ComFrame, the common framework for the supervision of internationally active insurance groups, should establish strong principles for group capital calculations. This capital element, he said, would include the metrics used to assess capital and the overall level of confidence.

ComFrame was initiated in response to the recognition that, despite the growing relevance of international groups in the global insurance market, no internationally coherent framework exists for the supervision of such large, global groups.

Moves to establish a set of principles for group capital requirements have faced resistance from US regulatory bodies and insurers. The National Association of Insurance Commissioners (NAIC) in the US fears that a lack of flexibility within the group capital calculations provided by ComFrame could potentially be counterproductive under certain regulatory contexts.

While Bernardino called for principles on capital requirements to be put in place, he also recognised that ComFrame needs to reflect regional regulatory difference was not about developing a single system. This position is supported by trade association Insurance Europe. "It is important that the strategic direction... provides sufficient flexibility to allow for the recognition of national regimes", it said in its response to ComFrame.

Bernardino also emphasised the need for a practical approach to the identification of globally systemically important insurers (G-SIIs), which is also being developed by the International Association of Insurance Supervisors. The EIOPA chairman stressed the importance of recognising the differences between the banking and insurance industry, arguing that applying the same identifiers for systemically important financial institutions to both industries was not logical.

Under the draft assessment criteria for G-SIIs published by the IAIS in May this year, the size and global reach of insurers remained a key consideration, as it does within that created to identify global systemically important banks. Bernardino said that while size remains a key consideration, it should not be the dominant factor in the identification process. He pointed to the particularly damaging consequences of insurers engaging in non-traditional activities, such as trading in credit default swaps, and argued that this should be the key concern within the assessment criteria.

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EIOPA speech

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