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IAIS on Basel III: Insurance is Different from Banking

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The head of the International Association of Insurance Supervisors IAIS) says regulators must consider the long-term nature of the liabilities that insurers face when developing standards for insurance supervision.

The Basel Committee on Banking Supervision, Basel, Switzerland, a group that serves with the IAIS on the world Financial Stability Board, Basel, has drawn attention to international financial services standards efforts by releasing the Basel III bank capital standards.

In jurisdictions that adopt the standards, banks would have to increase the ratio of common equity to risk-adjusted assets to 7%, up from a minimum of 2% today. Banks also would have to limit the value of investments in deferred tax assets, mortgage servicing rights, and stakes in insurers and other financial institutions to 15% of the common equity included in capital-to-assets ratio calculations.

IAIS Secretary General Yoshihiro Kawai says the IAIS commends the Basel Committee on the introduction of capital reforms and a global liquidity standard for banks.

The IAIS will assess the implications of the reforms for insurance supervision, Kawai says.

“It is important to emphasise the differences in the insurance business model,” Kawai says. “Unlike in the banking sector, the risks specific to the insurance sector are also significantly related to the liability side of the balance sheet, whereby adequate technical provisions

have to be established for liabilities running over a longer term than in banking. Requirements for adequate longer term matching of assets and liabilities are also crucial. These requirements are complemented by capital adequacy requirements that enable the insurer to absorb unforeseen losses.”

The IAIS seeks to promote “effective and transparent supervision of insurance markets through global, sustainable and coherent supervisory principles, standards and guidance, while minimising opportunities for regulatory arbitrage,” Kawai says. ” Where there are particular products or corporate structures causing risk on a cross-sector basis, cross-sector coordination initiatives will be proactively promoted to find appropriate solutions.”

The IAIS is commited to working with other regulatory groups, through the Joint Forum at the Financial Stability Board, “to addressing regulatory arbitrage in the context of conglomerates and cross-sectoral issues,” Kawai says.


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