The insurers are: Allianz SE American International Group, Inc., Assicurazioni Generali S.p.A., Aviva plc, Axa S.A., MetLife, Inc., Ping An Insurance (Group) Company of China, Ltd., Prudential Financial Inc. in the U.S. and Britain’s Prudential plc.
The nine insurers designated by the FSB will be subject to a host of rules if their countries adopt the measures. For instance they will be subject to higher capital amount requirements, higher quality capital requirements, potential corporate restructurings, potential divisions of business and restrictions on business, and orderly plans for the effective resolvability of their companies if they were to fail.
Today the International Association of Insurance Supervisors (IAIS) also released proposed final G-SII policy measures, assessment methodology for determining them, as well as a report on macro-prudential policy and surveillance in insurance.
These G-SIIs will be required to hold regulatory capital for all group activities. The development of backstop capital requirements will be finalized by September 2014 and the requirements will apply shortly thereafter.
Starting in 2019, G-SIIs must have a higher loss absorption (HLA) capacity for conducting their nontraditional and non-insurance activities (NT, NI). These activities are very broadly defined, roping in a large swathe of life insurance activities.
By the end of 2015, the IAIS will develop the implementation details for HLA that will apply to designated G-SIIs. The IAIS based its initial recommendations on methodology using 2011 data.
The activities that might make an insurer a G-SII can vary greatly from one insurer to another, but are generally related to their NTNI activities and any interconnectedness generated from those activities, the IAIS stated.
The two most important factors for assessing the systemic importance of insurers are NTNI activities and the degree of interconnectedness, according to the IAIS.
NTNI activities are important because, among other matters, the longer timeframe over which insurance liabilities can normally be managed may not be present.
What constitutes NTNI has been a point of concern with insurers, though. Some argue, for example, that what is nontraditional – such as variable annuities – really is traditional, at least in the United States.
The life insurance industry and the Geneva Association have argued vociferously against their inclusion as NT. In fact, almost all voices in the industry in public G-SII forums have been critical of the methodology and of the G-SII policy, arguing that insurance is not systemically risky, and creating the framework will make insurers more risky and bank-like, and less focused on long-term liabilities, as intended.
According to the IAIS documents released today, there are many examples of NT or NI, or both, including variable annuities, products with guaranteed minimum death and withdrawal benefits, guaranteed investment contracts (GICs), which are used by all variable annuity writers to hedge risk, synthetic GICs and products that provide credit guarantees to financial products such as securities, mortgages and other traded or non-traded instruments will be considered NTNI by the IAIS.