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Industry reacts to insurers named as globally systemically important

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Industry reacts to insurers named as globally systemically important

Insurance industry reaction to international regulators' designation of nine insurers being systemically important has been swift and varied.

Thursday's decision by the Basel, Switzerland-based Financial Stability Board and the publishing of assessment methodology and policy measures by the International Association of Insurance Supervisors means the nine insurers likely will need to set aside more capital to comply with regulations.

Those insurers are Allianz S.E., American International Group Inc., Assicurazioni Generali S.p.A., Aviva P.L.C., Axa S.A., MetLife Inc., Ping An Insurance (Group) Co. of China Ltd., Prudential Financial Inc. and Prudential P.L.C.

Dieter Wemmer, chief financial officer of Munich-based Allianz S.E., one of the nine designees, said that while it is too soon to give a detailed assessment of global regulatory stance, the insurer is well positioned to manage new requirements.

“Even though we continue to be of the opinion that the insurance business in general, and Allianz in particular, does not represent a systemic risk, we acknowledge the decision of the FSB and will continue to support its efforts for more stable financial markets, Mr. Wemmer said in a statement.

David Snyder, vice president of international policy for the Chicago-based Property Casualty Insurers Association of America, said the group appreciates that the FSB's designation of just nine insurers recognized that the traditional insurance business model does not pose systemic risk.

“International insurance regulators through the IAIS have concluded again that neither the short- nor long-term experience of insurance markets, including during the global financial crisis, provides any evidence that traditional insurance generates or transmits systemic risk in the financial system or the real economy,” Mr. Snyder said in a statement. “The potential for systemic risk arises only from nontraditional or noninsurance activities.”

Yet, Leigh Ann Pusey, president and CEO of the Washington-based American Insurance Association, expressed concern about the designations and the methodology that produced them. By targeting only insurers and not other financial institutions, the rules are not an objective gauge of systemic risk, she said.

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Moreover, Ms. Pusey argued that the criteria overemphasize the size of the insurer and “may unfairly stigmatize those types of insurance that are deemed nontraditional.”

She also argued that an insurer improperly labeled a global systemically important insurer may struggle due to increased capital requirements. “If companies are incorrectly designated as G-SIIs, application of heightened capital standards could end up either harming their ability to compete or could unintentionally lead to the type of systemic threat that the FSB and IAIS are trying to avoid,” Ms. Pusey said in a statement.

Mike McGavick, chairman of insurance think tank The Geneva Association and CEO of Dublin-based XL Group P.L.C., said insurers need more information about the still-evolving designation process.

“It is important that the criteria and measurements used to designate a G-SII are made available as soon as possible and are transparent, predictable and measurable,” Mr. McGavick said in a statement. “Without a transparent and predictable process, it is impossible for management to monitor and manage systemic risk levels.”

Jim Bichard, an insurance industry adviser at consultant PricewaterhouseCoopers L.L.P., told Reuters it is clear that the new rules ultimately will affect a wider circle of insurers.

“Whilst the list contains nine insurers who are deemed globally important, we expect that other internationally active insurers will follow these developments closely as regional and domestic policy-makers are already developing standards for their domestic markets,” Mr. Bichard said.

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