WASHINGTON BUREAU — Life insurers are joining with property-casualty insurers worldwide to ask the Group of 20 to distinguish between the banking industry and the insurance industry when trying to address systemic risk.
Trade groups representing both U.S. and non-U.S. insurers and reinsurers asked for the distinction to be made in a letter sent to the U.S. Treasury Department in advance of a G-20 meeting set to start Nov. 11 Seoul, Korea.
The G-20 represents the biggest, richest economies. Meeting organizers hope to address ways the largest nations can join to improve regulation of the world financial system.
The International Association of Insurance Supervisors, Basel, Switzerland, has urged other financial services regulators to recognize the differences between insurers and other types of financial services companies.
Now insurers are contending in their letter that insurers have a different risk profile than banks, and that subjecting insurers to additional capital and reporting requirements to reduce systemic risk could well “have the opposite effect, by increasing the risk of moral hazard and causing market distortions.”
Moreover, insurers 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.”
Insurers say they have done relatively well during the financial crisis in comparison with other financial services sectors.
“This is evidence that the insurance regulatory
framework, which is aimed at an adequate level of policyholder protection, works well in most jurisdictions,” insurers say.
Emphasizing principles and risk management, rather than adherence to static rules and formulas, should give regulators the ability to deal with concerns about insurer systemic risk using a range of measures other than simply resorting to higher capital requirements, insurers say.
The groups signing the letter include the American Council of Life Insurers, Washington; the American Insurance Association, Washington; the Association of British Insurers, London; the Association of Bermuda Insurers and Reinsurers, Hamilton, Bermuda; the Brazilian Insurance Confederation, Rio de Janeiro; the Canadian Life and Health Insurance Association, Toronto; the Dutch Association of Insurers, The Hague, Netherlands; the European Insurance and Reinsurance Federation, Brussels; the General Insurance Association of Japan, Tokyo; the Insurance Bureau of Canada, Toronto; the Insurance Council of Australia, Sydney; the Life Insurance Association of Japan, Tokyo; the Property Casualty Insurers Association of America, Des Plaines, Ill.; and the Reinsurance Association of America, Washington.
In addition to discussing capital requirements, the insurers also discuss what they see as being other strengths in the world insurance regulatory system.
Insurance regulators, for example, already have mechanisms in place for winding down insurers in an orderly fashion, and regulators should give due consideration to those mechanisms before imposing new resolution frameworks, insurers say.
Insurers also say that it is unnecessary to make insurers contribute to a fund that would pay for the future resolution of an insurer, because insurers are less likely than banks to be the recipients of future government help.