On 18 July, 2013, the International Association of Insurance Supervisors (IAIS) released its framework for globally systemically important insurers (GSIIs). This has also been endorsed by the Financial Stability Board (FSB).

Of the 50 insurers from 14 jurisdictions reviewed, a total of nine insurance groups have now been designated as GSIIs. Designation as a GSII is based on size, complexity, interconnectedness and the possible impact of the insurer’s distress or failure on the global financial system. We are likely to see additional designations in future including reinsurers who are due to be designated by July 2014.

The GSII framework in brief

GSIIs will be subject to: 

  • Recovery and resolution plan requirements 
  • Enhanced group-wide supervision 
  • Higher loss absorbency requirements for non traditional and non-insurance business

The Recovery and Resolution Plan requirements include the establishment of a Crisis Management Group within a year, the development of a liquidity risk management plan by the end of 2014 and assessments on the basis of and participation in cross border regulatory co-operation measures.

With immediate effect insurance holding companies are subject to supervision by group wide regulators who will oversee a Systemic Risk Management Plan for each GSII.

One of the most significant features of the framework is the loss absorbency rules (LARs). Higher LARs will apply to non traditional and non insurance activities and there will be incentives to separate these activities from traditional insurance business. The detailed requirements for these rules are due for release in 2015 and will then need to be implemented by 2019. Additional consultation is planned.

Relevant impact

The application of the framework to existing GSIIs and those that may be designated as GSIIs in future will need to be considered in the context of, amongst other things: 

  • Group Structuring 
  • Future acquisitions 
  • New risk financing arrangements of a non-traditional nature 
  • Hedging arrangements 
  • Securities lending and other liquidity arrangements