The International Association of Insurance Supervisors (IAIS) published on 1 June a consultation paper on its proposed method for assessing whether an insurance company is of global systemic importance. The paper does recognise in clear terms that “the traditional insurance business model is different from banking”. While this is obvious to market participants it is important that it has been formally recognised to avoid a ‘one size fits all’ solution for financial services as a whole.
The importance of this categorisation is that, as agreed by the FSB and the G20, systemically important financial institutions should be subject to more intensive and internationally coordinated supervision; hold additional capital (the “capital surcharge”); and be subject to a resolution regime that would enable the authorities to resolve an institution in an orderly manner without destabilising the financial system and without exposing taxpayers to the risk of loss. The FSB has also consistently argued that the framework developed for G-SIFIs should be rolled out in due course for national SIFIs.
Now that the IAIS has progressed this issue for insurance companies it is likely that the EU Commission will move forward on its stated intention to extend a version a recovery and resolution planning to insurance companies.
- Read the full consultation paper, including the implications this could have for firms, the criteria for determining systemic importance and also the next steps moving forward.