Insurers are asking the Financial Stability Board (FSB) to recognize that major financial problems take longer to surface at insurers than at banks, and that insurers face much less liquidity risk.

The American Council of Life Insurers (ACLI), Washington, has made that plea in a letter that the ACLI submitted to the FSB, Basel, Switzerland, together with life and property-casualty groups from around the world.

The FSB and the Basel Committee on Banking Supervision have been working on draft documents that are supposed to describe measures developed countries will use to keep systemically important financial institutions (SIFIs) from crashing the financial system.

The banking supervision panel released a draft that focused mainly on banks.

The FSB tried to develop a broader document.

But the ACLI and other insurance groups say the FSB draft still does too little to take the nature of insurers into account.

“The insurance business is conducted by matching safe and stable assets against expected future payments to policyholders and other claimants,” the insurance groups say. “Insurers generally do not face the same risk of liquidity shortages or to a consequent short term asset sell-off to the same extent as banks, considering the mismatch as between bank assets and bank deposits.”

Insurance regulators require insurers to hold substantial amounts of capital, and “insurance entities that begin any downward spiral are quickly detectable before they come anywhere near insolvency levels,” the insurance groups say.

Moreover, policyholders cannot necessarily cash in policies immediately simply because they have concerns about the insurer, and that means an insurer can get the liquidity needed to meet customer demands in a more orderly fashion than a bank facing a “run,” the insurance groups say.

“Unlike banks, there is no need for a failing insurer to be resolved over a weekend, because there is no need to settle claims immediately,” the groups say.

The groups acknowledge that American International Group Inc., New York (NYSE:AIG), ran into trouble in 2008, but they assert that AIG faced problems because of a financial products division that was outside the scope of insurance regulation, not because of problems with the company’s insurance operations.

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