Identifying and supervising Global
Systemically Important Insurers
Yoshihiro Kawai
Secretary General
International Association of Insurance Supervisors
Santiago de Chile
19 November 2013
Outline
1. Relevance
2. Background
1. What are G-SIFIs?
2. Role of insurance in financial stability
3. Global Systemically Important
Insurers (G-SIIs)
1. Designation
2. Policy measures
4. Conclusion
1. Relevance
• G-SII policy measures have impact on host
jurisdictions
• G-SII policy measures will be a basis for
domestic SIIs discussions in coming months
• G-SII policy measures spillover into IAIG
policy measures (resolution issues, capital
standards, group wide supervision)
Hence: G-SII policy measures are also
relevant for jurisdictions where no
G-SII is domiciled.
Outline
1. Relevance
2. Background
1. What are G-SIFIs?
2. Role of insurance in financial stability
3. Global Systemically Important
Insurers (G-SIIs)
1. Designation
2. Policy measures
4. Conclusion
2. Background: What are G-SIFIs?
•
What are G-SIFIs (Global Systemically
Important Financial Institutions) ?
•
Lehman Brothers failure in September
2008
•
Government rescues of financial
institutions
•
Why are G-SIFIs important?
Outline
1. Relevance
2. Background
1. What are G-SIFIs?
2. Role of insurance in financial stability
3. Global Systemically Important
Insurers (G-SIIs)
1. Designation
2. Policy measures
4. Conclusion
2. Background: Role of insurance in
financial stability (i)
• Differences exist between traditional
insurance and banking business, e.g.
-
Banking business has inherent maturity
mismatch
Insurance underwriting risks largely not
correlated with economic business cycle
Cash outflows can occur over long periods of
time
• The unique insurance business model
helps insurance firms to withstand
systemic risk better than banks.
However….
2. Background: Role of insurance in
financial stability (ii)
• Insurance sector is susceptible to
systemic risk generated in other parts of
the financial sector
• Insurers may amplify risk under specific
circumstances
• Non-traditional insurance and noninsurance activities within insurance
groups may generate or amplify systemic
risk.
Outline
1. Relevance
2. Background
1. What are G-SIFIs?
2. Role of insurance in financial stability
3. Global Systemically Important
Insurers (G-SIIs)
1. Designation
2. Policy measures
4. Conclusion
IAIS indicator-based assessment approach
• IAIS agreed an indicator-based
assessment approach similar to the
G-SIBs (Global Systemically Important
Banks) methodology but with differences
to reflect the insurance business model
- Instead of the G-SIB ‘complexity category’, a
specific ‘Non-Traditional and Non-Insurance
(NT-NI) category
- Higher weighting for NT-NI and
interconnectedness
G-SIIs: Assessment methodology (i)
• 20 indicators in 5 categories: size, global
activity, interconnectedness, NonTraditional insurance and Non-Insurance
(NTNI) activities and substitutability
• In total 50 firms from 14 jurisdictions were
included in the data call
G-SII: Assessment methodology (ii)
Categories
Weight
Size
5%
Global activity
5%
Interconnectedness
40%
NTNI activities
45%
Substitutability
5%
G-SIIs: NTNI (Non Traditional and Non Insurance)
Noninsurance
Underwriting
Investments and
funding activities
Insurance
Traditional
Non-traditional
•
•
•
Most life and non-life
(re)insurance
business lines
Proprietary investment
function (ALM)
Funding through equity
and debt issues; incl.
securities lending
•
•
•
•
•
•
•
Variable annuities
Trade credit insurance
Mortgage guarantee
insurance
Proprietary and
derivatives trading
(non ALM related)
•
•
•
•
•
•
Alternative risk
transfer (ART)
Financial guarantee
insurance
Finite reinsurance
Synthetic investment
portfolios
Embedded Value
securitisations
Excessive repos and
securities lending
Capital market business
CDS/CDO underwriting
Banking, incl. Investment banking and hedge fund activities
G-SII: Assessment methodology (iii)
First cohort of G-SIIs (in alphabetical order):
•
•
•
•
•
•
•
Allianz SE
American International Group, Inc.
Assicurazioni Generali S.p.A.
Aviva plc
Axa S.A.
MetLife, Inc.
Ping An Insurance (Group) Company of China,
Ltd.
• Prudential Financial, Inc.
• Prudential plc
Outline
1. Relevance
2. Background
1. What are G-SIFIs?
2. Role of insurance in financial stability
3. Global Systemically Important
Insurers (G-SIIs)
1. Designation
2. Policy measures
4. Conclusion
Objectives of G-SII policy measures
G-SII policy measures should:
1.Reduce moral hazard from the failure of a
G-SII
2.Reduce negative externalities from the
failure of a G-SII,
3.Reduce the probability and impact of default
of G-SIIs
4.Incentivise G-SIIs to become less
systemically important
G-SIIs: Policy framework
• Enhanced supervision
• Effective resolution
• Higher loss absorbency
G-SIIs: Policy framework
Enhanced supervision
• Systemic risk management plan (SRMP)
• Group-wide supervision
• Liquidity management
G-SIIs: Policy framework
Effective resolution
• Crisis management groups (CMGs)
• Recovery and resolution plans
• Resolvability assessments
• Institution specific cross-border cooperation
agreements
G-SIIs: Policy framework
Higher loss absorbency (HLA)
• Step1: Develop straightforward backstop
capital requirements by September 2014 as a
basis
• Step 2: Development of HLA by the end of
2015 and full implementation by 2019
G-SIIs: Time frame
Key
Implementation
Dates
Action required
(or intermediate activity)
July 2013
First G-SIIs designated
July 2014
• Crisis Management Groups (CMGs) to be established
• Recommendation on G-SII status of reinsurers
• Systemic Risk Management Plan (SRMP) to be completed
Straightforward back stop capital requirements BCRs to be
developed
November 2014
End 2014
Recovery and resolution plans including liquidity risk
management plans to be developed and agreed by CMGs
End 2015
Higher loss absorbency HLA developed (for all G-SIIs)
July 2016
Implementation of SRMP to be assessed
End 2016
Risk based global insurance capital standard (ICS) developed
(for all IAIGs)
January 2019
Full implementation of HLA and ComFrame,
including ICS
Outline
1. Relevance
2. Background
1. What are G-SIFIs?
2. Role of insurance in financial stability
3. Global Systemically Important
Insurers (G-SIIs)
1. Designation
2. Policy measures
4. Conclusion
Conclusion
• G-SII policies – catalysts for
developments on global standard
setting
• Importance for both home and host
supervisors
• Tight deadlines for both development
and implementation
• IAIS commitment to develop and
implement solid policy measures for
G-SIIs with tight deadline
Thank you very much
www.iaisweb.org
yoshihiro.kawai@bis.org