Big insurers welcome regulators' rethink of sector risks
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[November 21, 2017]
By Huw Jones
LONDON (Reuters) - Global regulators are
rethinking how to assess risks in big insurance companies, marking a
shift that could make life easier for the industry.
The Financial Stability Board said on Tuesday it could take a different
approach to assessing risk which would change the way it compiles a list
of "systemically" important insurers that must comply with tough rules
to cushion them against losses.
Reuters reported the rethink earlier this month, marking a victory for
insurers following pressure from the U.S. Treasury.
The FSB, which coordinates financial rules across the Group of 20 (G20)
economies, first created its list of globally systemic insurers in 2013
and updates it each November.
The aim of the FSB list is to ensure that big insurers comply with extra
requirements such as "higher loss absorbency" and closer scrutiny.
But the FSB, based in Basel, Switzerland, said work by insurance
regulators to develop an approach focused more on an insurer's
activities rather than its size, "may have significant implications for
the assessment of systemic risk in the insurance sector."
The FSB will review progress on this "activities-based approach" in
Insurers have long argued they should not be treated like banks when it
comes to setting capital requirements.
U.S. insurer AIG's <AIG.N> $182 billion bailout by American taxpayers in
the financial crisis was an exception due to its involvement in risky
activities, the industry has said.
Five of the nine insurers on the FSB's 2016 list - Aegon <AEGN.AS>,
Allianz <ALVG.DE>, Aviva <AV.L>, Axa <AXAF.PA> and Prudential <PRU.L>,
are based in Europe.
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"Although, it is possible that insurers can develop activities, such as banking
type business, which could be systemic, this has always been rare," Nicolas
Jeanmart, head of personal and general insurance at trade body Insurance Europe,
said in a statement.
"The current list approach, with automatic capital increases for those included,
and largely driven by the size, is flawed," Jeanmart said.
The Association of British Insurers (ABI) said the FSB had taken a "puzzling
step", but it was hopeful the new approach would lead to a more sophisticated
way of assessing risks.
ABI policy adviser Annalise Vucetich said it was unclear why the FSB won't go
ahead with updating its list given that work on an activities based approach has
Work on a global capital standard for the big insurers is also taking longer
than expected due to disagreements between the United States and Europe.
In the meantime, the U.S. Treasury Department has been pushing the FSB to ease
up on insurers and asset managers. A group of U.S. regulators have removed AIG
from its domestic list of systemically important insurers, raising questions
over whether the FSB would keep it on its global list.
Global watchdogs like the FSB face the choice of accommodating the United States
or risk having the world's most important capital market pulling back from
The FSB has already had to back down from treating big asset managers like banks
and switched to an activities-based approach after pressure, this time from
fellow securities regulators.
(Reporting by Huw Jones; editing by Jason Neely and Jane Merriman)
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