Wider sector may face similar scrutiny to 'too big to fail' insurers

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In 2020 the International Association of Insurance Supervisors hopes to make key changes to how systemic risk in the insurance sector is measured and dealt with, in a move that could see more insurers face similar scrutiny to 'too big to fail' insurers and the G-SII classification dropped.

The global body, which is made up of volunteer members from insurance supervisors and regulators in over 200 jurisdictions, has put together a holistic framework that it hopes to enforce in 2020. This is subject to a public consultation, which will be open until 29 January 2019.

As part of the proposals, supervisory policies that currently only apply to G-SIIs, commonly known as insurers that are ‘too big to fail’, would be extended to include others. The Financial Stability Board declined to publish an updated list of G-SIIs in November 2017 and will not be publishing one in 2018, following the consultation announcement. As a result of the proposals, the FSB is considering dropping the G-SII classification or reviewing the process behind it.

The 2016 list included Aegon, Allianz, AIG, Aviva, Axa, Metlife, Ping An, Prudential Financial and Prudential.

Supervisors have committed to applying existing policy until any such changes are made, according to the FSB.

An announcement on its website said: “The FSB notes that a new holistic framework, appropriately implemented, would provide an enhanced basis for mitigating systemic risk in the insurance sector.”

The key changes the IAIS is proposing are:

  • An enhanced set of supervisory policy measures for macroprudential purposes. These will intend to prevent vulnerabilities through on-going supervisory requirements, enhanced macroprudential surveillance and crisis management and planning.
  • The IAIS has designed a global monitoring exercise that is intended to detect a buildup of systemic risk in the sector. It will assess both individual insurers and sector-wide trends.
  • Supervisory intervention when potential systemic risks are detected. In its report, the IAIS has recommended that insurer supervisors’ “toolbox of measure” include the power to report on the management of systemic risk, as well as the reinforcement of insurers’ financial positions. This is similar to policy measures enforced on G-SIIs.
  • Mechanisms for the global consistent application of the framework, which involve a collective assessment of potential global systemic risk and co-ordinated supervisory responses where required. This would include a collective discussion at IAIS level and reporting to the Financial Stability Board on outcomes of the assessment.
  • An assessment by the IAIS on consistent implementation of supervisory policy measures and powers of intervention.

 

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