Members of the The Group of Twenty Finance Ministers and Central Bank Governors (G-20) will have plenty of reading material ahead of their Seoul Summit. Insurers representing property/casualty and life and health insurers worldwide are organizing efforts in a petition to the G-20, asking them to distinguish between the insurance and banking industry when trying to address systemic risk.
In a letter dated October 21 sent to the U.S. Treasury Department—in advance of a G-20 meeting set to start Nov. 11 Seoul, South Korea—the insurance groups state that insurers have a different risk profile than do banks and other financial institutions, and, therefore should be treated differently in terms of regulatory reporting requirements.
“Subjecting [insurers] to additional capital and reporting requirements would miss the ultimate goal of achieving greater financial stability,” says the letter. “Indeed such an approach could very well have the opposite effect by increasing the risk of moral hazard and causing market distortions. We ask G-20 governments, their regulators, and their central banks to give due and proper consideration to the differentiated nature of insurance when deciding upon any measures to address systemic risks.”
The letter goes on to say, “the identification of individual insurers as being systemically important financial institutions (SIFIs) and subjecting them to additional capital and reporting requirements would miss the ultimate goal of achieving greater financial stability.”
Established in 1999 in the wake of the 1997 Asian Financial Crisis, the G-20 was established to bring together major advanced and emerging economies to stabilize the global financial market, and represents the largest and most financially robust markets in the world. Since its inception, G-20’s meeting organizers hope to address ways the largest nations can join to improve regulation of the world financial system.
In its letter to the organization, the insurance groups maintain that the industry’s focus on principles and risk management has helped it remain financially stable, therefore, not requiring additional capital requirements or reporting mandates.
“The insurance regulatory framework, which is aimed at an adequate level of policyholder protection, works well in most jurisdictions,” notes the letter.
The letter also recommends that the G-20 reconsider its possible insurer contribution requirements, because, unlike banks, the nature of the industry’s financial dealings makes it less likely to require any future federal financial help.
The list of associations who participated as signatories to the letter follow:
• American Council of Life Insurers (ACLI)
• American Insurance Association (AIA)
• Association of British Insurers (ABI)
• Association of Bermuda Insurers and Reinsurers (ABIR)
• Brazilian Insurance Confederation (CNSeg)
• Canadian Life and Health Insurance Association (CLHIA)
• Dublin International Insurance & Management Association (DIMA)
• Dutch Association of Insurers (VVN)
• European Insurance and Reinsurance Federation (CEA)
• Inter-American Federation of Insurance Companies (FIDES)
• General Insurance Association of Japan (GIAJ)
• Group of North American Insurance Enterprises (GNAIE)
• Insurance Bureau of Canada (IBC)
• Insurance Council of Australia (ICA)
• Life Insurance Association of Japan (LIAJ)
• Property Casualty Insurers Association of America (PCI)
• Reinsurance Association of America (RAA)
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Corrected October 26, 2010 at 1:10PM: yes