The International Association of Insurance Supervisors (IAIS) released a proposed assessment methodology for identifying global systemically important insurers, or G-SIIs.
The proposed methodology is similar to the Basel Committee’s approach to identifying global systemically important banks, with several important differences reflecting particularities of the insurance business model.
The methodology would involve three steps: the collection of data, an indicator-based assessment of the data, and a process of supervisory judgment and validation, with 18 indicators under five categories. Those categories are size, global activity, interconnectedness, non-traditional insurance and non-insurance activities, and substitutability.
“This proposed methodology results from intensive and thorough discussion within the IAIS based on the expertise from supervisors around the world,” said Peter Braumüller, chair of the IAIS Executive Committee. “Based on a recommendation by the G20 leaders and the Financial Stability Board, the IAIS has accomplished an important piece of financial sector reform.”
According to the press release, “the paper was endorsed for consultation by the Financial Stability Board (FSB), which is coordinating the overall set of measures to reduce the moral hazard posed by global systemically important financial institutions. Supervisors, insurers and other interested parties are encouraged to submit comments on the proposed methodology through July 31.”
In developing the proposed methodology, the IAIS considered its November 2011 report “Insurance and Financial Stability,” which found little evidence that traditional insurance generates or amplifies systemic risk within the financial system or in the real economy.
“The potential for systemic risk within the insurance sector needs to be considered where insurers deviate from the traditional insurance business model and more particularly where they enter into non-traditional insurance or non-insurance activities,” Braumüller said. As a result, higher weights for non-traditional and non-insurance activities and interconnectedness categories in determining an insurer’s relative score.
