Insurers included on the Financial Stability Board's list of global systemically important insurers (G-SIIs) could see a modest improvement in their credit profiles due to the higher risk and capital management standards imposed on them, according to Fitch Ratings.
However, there is an alternative scenario: If the extra capital the insurers have to hold for specific products makes them less competitive and damages their market position, ratings could take a hit.
Fitch also points out that while some of the nine G-SIIs are already supported by strong capital levels and ratings are more likely to be limited by earnings power and market position than by capital adequacy, some have high debt leverage, which could be reduced by any additional capital they may have to hold.
The requirements for G-SIIs will be introduced over a long timeframe, with additional capital requirements on non-traditional business not likely to come into force until 2019.
For the time being, the FSB’s decision to apply extra capital requirements only to non-traditional insurance business indicates a focus on risk, rather than just size. This limits the impact that the G-SII requirements will have on balance sheets, especially since so few large insurers still underwrite credit default protection products such as those that got AIG Financial Products into trouble. However, other products, potentially including variable annuities, may face higher capital requirements.
The list of G-SIIs (see below) will be updated each year in November, starting from 2014. However, insurers that aren't included on the GS-II list will not necessarily avoid additional capital requirements as many are likely to end up included on individual countries' lists of systemically important firms, which may largely mirror the G-SII standards.
The insurers named G-SIIs:
American International Group, Inc.
Assicurazioni Generali S.p.A.
Ping An Insurance (Group) Company of China Ltd.
Prudential Financial Inc.
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