As the Financial Stability Oversight Council continues its process for designating systemically important financial institutions (SIFIs) (see our previous blog on this topic here), the International Association of Insurance Supervisors (IAIS) has released its policy measures for global systemically important insurers, or G-SIIs. A copy of the IAIS press release, dated October 17, 2012, can be accessed here. Interested parties may submit comments on the proposed policies through December 16, 2012.
IAIS has indicated that it believes the proposed policies reflect the factors that make insurers different from other financial institutions. The proposal consists of three main types of measures:
(1) Enhanced supervision, including the development of a “Systemic Risk Reduction Plan” and enhanced liquidity planning and management.
(2) Effective resolution, including the establishment of “Crisis Management Groups” and the adoption of institution-specific cross-border cooperation agreements. In addition, the IAIS has attempted to factor in the unique characteristics of insurance through the inclusion of plans for separating non-traditional, non-insurance (NTNI) activities from traditional insurance activities, and the consideration of potential use of portfolio transfers and run-off arrangements, and the recognition of existing policyholder protection and guarantee schemes.
(3) Higher loss absorption (HLA) capacity. This proposal utilizes a cascading approach. In the first step, if the G-SII has demonstrated effective separation of NTNI activities from traditional insurance activities, targeted HLA will be applied to the separate entities. Under the second step, whether or not NTNI activities have been separated, an overall group-wide assessment will be made and the group wide supervisor will determine whether the HLA capacity held at the NTNI entities is sufficient or whether it should be increased.
Earlier IAIS press releases, along with compilations of public comment and IAIS responses to these comments, can be found on the IAIS website at http://iaisweb.org/.