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Big insurers may escape regulators' systemic list: Watchdog

Big insurers may escape regulators' systemic list: Watchdog

(Reuters) — Global insurers deemed by regulators as likely to destabilize the financial system should they fail could find a way of removing themselves from the list, such as by simplifying themselves, a German watchdog said.

International regulators in July listed nine such insurers, including American International Group Inc. and Allianz S.E., in a prelude to requiring them to hold more capital from 2019 to cover risks to the financial system.

Inclusion on the list hinges on the size of the insurer, whether it is involved in risky activities such as derivatives and its global reach.

The insurers criticized the approach, arguing that the sector did not cause the 2008 financial crisis and should therefore not be tarred with the same regulatory brush as banks and have to shoulder increased costs of holding more capital as a safety buffer.

Felix Hufeld, the top insurance supervisor at German financial watchdog Bafin, told Reuters without giving details that the companies would have options to remove their names on the list once the rules are finalized later this year.

"It should be possible to get down off the list of systemically relevant insurers," Mr. Hufeld said.

"The additional capital requirements are not only there to increase safety but should also create an incentive to separate from systemically relevant activities," he added.

The new regime is aimed at avoiding a repeat of insurer AIG, which was bailed out by American taxpayers after its derivatives trading arm got into trouble.

Global insurance supervisors are still in the process of developing appropriate regulation for systemically important insurers, he said.

The new rules by the regulators were called for by world leaders in the Group of 20 top economies (G-20) that approved a similar regime for 28 of the world's top banks, also by 2019.

Insurance supervisors are working on defining global standards for basic capital requirements, which they hope to have ready for a G-20 meeting in Brisbane in November.

Mr. Hufeld said insurance supervisors could not simply copy the approach used by banking regulators, because insurance was a fundamentally different business.

"Systemic risks for insurers derive from particular activities that could affect an unknown number of insurers in the same way," he said.

"A single company turning into a problem of its own accord will probably remain the exception; more likely is a single 'Typhoid Mary' that infects a large number of companies, thereby creating the 'systemic' aspect of the risk," Mr. Hufeld said.

Besides Allianz and AIG, the other companies initially identified as systemically relevant were Assicurazioni Generali S.p.A., Aviva P.L.C., Axa S.A., MetLife Inc., Ping An Insurance Co. of China Ltd., Prudential Financial Inc. and Prudential P.L.C.

A decision on including any large reinsurers such Munich Reinsurance Co. and Swiss Re Ltd. will be taken at a later date.