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Insurance regulators set capital rules for firms too-big-to-fail

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(Bloomberg) — Nine too-big-to-fail insurers, including American International Group Inc., Allianz SE and MetLife Inc., must start reporting capital ratios next year using a method presented by regulators today.

The International Association of Insurance Supervisors has completed drafting “the first-ever global insurance capital standard,” the Basel-based body made up of regulators in almost 140 countries said in a statement today.

Regulators are trying to prevent widespread disorderly disruptions to financial markets that could be caused by the failure of large insurers, as happened with AIG’s near-collapse and bailout in 2008.

The Financial Stability Board, set up by the Group of 20 nations, published a list of nine institutions deemed systemically important in July 2013. It’s currently still considering which reinsurers merit a similar designation.

From 2015, the companies, which also include Axa SA in France and Prudential Financial Inc. in the U.S., will report a “basic capital requirements” ratio to their supervisors on a confidential basis, it said. The measure is calculated by dividing total qualifying capital resources by required capital at group level, defined by applying 15 factors to different types of activities such as life insurance or banking activities.

As a next stage, global regulators will define “higher loss absorbency” requirements by the end of next year, which will come on top of the basic capital requirements and are designed to reflect the insurers’ systemic importance in the international financial system, IAIS said.

Insurers that are on the list kept by the Financial Stability Board will have to maintain a buffer of at least the “basic capital requirements” plus the higher loss absorption demand starting in 2019. Prudential Plc and Aviva Plc of the U.K., China’s Ping Insurance Group Co. and Italy’s Assicurazioni Generali SpA were also included last year.

–With assistance from Carolyn Bandel in Zurich.


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