Hot topic: The supervision of global systemically important insurers – G-SII

Assessment and potential policy measures applicable to G-SIIs

The International Association of Insurance Supervisors (IAIS) has been working on the assessment and potential policy measures applicable to G-SIIs. In the spring they released their proposed assessment methodology for the identification of G-SIIs and last week they published a consultation on the policy measures to be applied to designated G-SIIs together with the proposed resolution to issues highlighted in the methodology consultation. The papers were endorsed for consultation by the Financial Stability Board (FSB), which is coordinating the overall set of measures to reduce the moral hazard posed by global systemically important financial institutions G-SIFIs (those that are ‘too big to fail’). Supervisors, insurers and other interested parties are encouraged to submit comments on the policy measures by 16 December 2012.

The policy measures the IAIS are seeking market reaction to include: enhanced supervision with G-SIIs expected to develop a plan to reduce their own systemic importance, effective resolution and higher loss absorbing capacity which means specific capital requirements related to the non traditional and non insurance elements of the insurer and group level extra capital requirements.

It is expected that the FSB will publish an initial list of G-SIIs in April 2013. The IAIS will then commence detailed development of measures on G-SIIs’ enhanced supervision with a view to having finalised policy measures 18 months later. Requirements will become effective from 2016 (for the systemic risk reduction plan) and 2019 for the higher loss absorbing capacity (capital) measures.