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Regulators need to work with insurers: Benmosche, other IIS panelist

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Regulators need to work with insurers: Benmosche, other IIS panelist

SEOUL, South Korea — Insurers face increased regulation across the globe, but different expectations by the various regulators make compliance complex, said Robert Benmosche, president and CEO of American International Group Inc.

European and U.S. regulators in particular have different concerns regarding insurers; and regulators in Asia, who have taken a flexible approach in the past, are investigating increasing regulatory burdens on insurers, he said Monday during a panel presentation.

In the U.S., where AIG this month was deemed a systemically important financial institution by the Financial Stability Oversight Council, the Federal Reserve is concerned with “run-on-the-bank” issues where investors collectively seek to take their money out of financial institutions during a crisis, he said.

With the advent of Solvency II, Europeans are more concerned about the capital held by insurers, Mr. Benmosche said.

“For us to provide global products and markets, we have to bring that together … when we have meetings with regulators, the Federal Reserve has to have a seat at the table,” he said during a panel discussion at the International Insurance Society's annual seminar, which is being held in Seoul, South Korea, this week.

AIG has made considerable progress in assessing its own risks since it was bailed out during the financial crisis in 2008, Mr. Benmosche said. AIG recently underwent a stress test that presumed a scenario where the insurer would make no profit for two years, the Standard & Poor's 500 index halved, credit spreads would have a 400- to 500-point “blowout,” unemployment would hit 12.5%, housing prices would fall 20% with a catastrophe loss the size of Superstorm Sandy.

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“At the end of all that, we can meet our capital requirements,” Mr. Benmosche said. “If that stress test was run on AIG in 2007-2008, it would have set off alarms so loud that we couldn't hear.”

In addition, to reviewing the financial condition of insurers, regulators and governments need to work with insurers to solve economic issues such as the underinsurance of catastrophe risks in Asia, said Ludger Arnoldussen, a member of the board of management at Munich Reinsurance Co., who also spoke on the panel.

Currently, the ratio of insured losses to economic losses for catastrophes in Asia is in the single digits in percent, he said. Yet catastrophe losses have increased significantly over the past two decades.

“What needs to be done is the insurers and governments get together to create country-by-country programs to deal with this,” Mr. Arnoldussen said.

Possible solutions could include incentives to buy insurance or compulsory insurance programs, he said.

The current economic environment limits how much governments can borrow or increase taxes to pay for catastrophic losses, so there is increased need for risks to be insured, Mr. Arnoldussen said.