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October 05, 2015 at 06:25 AM
(Bloomberg) — Global insurers with the greatest ties to the financial system would face an average increase of 10 percent to capital requirements under new standards proposed by a group of regulators.
The increase would be as high as 18.75 percent for unregulated-banking activities by firms deemed to be in a riskier tier, according to documents released Monday in Basel, Switzerland, by the International Association of Insurance Supervisors. For traditional insurance products sold by safer companies, the figure would be 6 percent.
Global regulators are seeking to limit risk at the biggest financial firms to avoid a repeat of the government bailouts that were required in the credit crisis. While more rescue funds went to banks, the U.S. had to prop up insurers led by New York- based American International Group Inc., which was hobbled by losses on derivative bets on subprime mortgages.
“The potential for systemic risk in insurance may become relevant where insurers significantly deviate from the traditional insurance business model,” the association said in a fact sheet. The rules are designed to “reduce the probability and impact of distress or failure” at a major firm.
Allianz, MetLife
AIG, Germany’s Allianz SE and Paris-based Axa SA were among nine insurers designated by international regulators in 2013 as too big to fail. The overseers said then that implementation details for capital rules would be developed by the end of 2015 and apply from early 2019.
Under so-called higher-loss-absorbency rules outlined Monday, the capital standard would be at least 12 percent higher than 2015 basic capital requirements for non-traditional insurance. Such coverage could include policies tied to mortgages and variable annuities, which are retirement products where results can fluctuate with gyrations in financial markets.
MetLife Inc., the largest U.S. life insurer and another of the nine companies, has been scaling back variable annuity sales in recent years. The company has been highlighting lines such as dental coverage or disability policies, where the insurer can reset prices to adjust to higher-than-expected claims costs, and where there is less risk tied to bond yields.
Timing Questioned
Still, Chief Executive Officer Steve Kandarian has said excessive regulation could lead to higher prices for consumers and put his company at a competitive disadvantage. The CEO has sought to overturn a U.S. designation that his company is a non- bank systemically important financial institution. He has also said international supervisors shouldn’t move too fast and that rules meant for banks wouldn’t fit his industry.
