On 31 May 2012 the International Association of Insurance Supervisors (the “IAIS”) began soliciting public comments on a proposed assessment methodology for designating insurance companies as global systemically important insurers (“G-SIIs”). Under the new proposals, an insurer’s possible designation as a G-SII – which could trigger enhanced regulatory scrutiny and heightened capital requirements – would depend on five factors: size, global activity, interconnectedness, non-traditional and non-insurance activities, and substitutability. These five categories of analysis, which are comprised of eighteen specific indicators, aim to reveal an insurer’s actual systemic importance to the global financial system.
Acknowledging that traditional insurance activities do little to create or exacerbate systemic risk, the IAIS has emphasised that the extent to which insurance firms are interconnected and the extent to which they engage in activities unrelated or tangential to insurance should be given the highest weightings when determining G-SII designations. The IAIS has also proposed implementing more intuitive analyses to act as a backstop to the above calculation-driven approach in the hope of both capturing systemically important institutions that might fall through the cracks of a solely indicator-based approach and of excluding institutions that meet the indicator approach, but which do not warrant enhanced scrutiny. The IAIS is accepting comments on the proposed methodology until 31 July 2012 and the Financial Stability Board, which coordinates at the international level the work of national financial authorities and international standard setting bodies, is expected to release an initial list of G-SIIs in the first half of 2013.
For further details, see the IAIS’s press release and proposal here.