Insurers face new regulatory threat from IAIS

Insurers face the threat of a raft of new regulatory restrictions being imposed on them when a new proposal by the International Association of Insurance Supervisors (IAIS) comes into effect.

The IAIS launched a consultation last month on its paper on proposed policy measures for global systemically important insurers (G-SIIs) which runs until 16 December.

The paper, which proposes greater supervision and more effective resolution, was endorsed by the Financial Stability Board (FSB), which is spearheading the drive to reduce the moral danger posed by global systemically important financial institutions.

PwC’s insurance regulatory partner Jim Birchard said that a number of insurers who realised they would be affected have been lobbying hard against the proposal, arguing that it is more of a banking issue, and calling for it to be proportionate when it comes into force.

“The signs are that it is likely to lead to more oversight, potentially more capital required and potentially more restrictions on the kind of things they can do,” he said.

In the UK, he said the Prudential Regulation Authority’s (PRA) policy announcement last month on dealing with recovery and resolution planning for insurers, meant that UK insurers were likely to get hit with a watered down version further down the line.

“The whole theme is about understanding what happens if an insurance company – a really big one that is very connected with all the financial markets - gets into trouble and how that can be mitigated,” he said.

Birchard said he expected large global insurers to have to start complying with the new rules by next year and UK insurers would follow suit in the middle to the end of 2013.

“I think from the industry’s perspective, the worst case scenario is that they get treated like banks and get similar levels of restrictions in almost everything they do,” he said.

“The other thing would be that that gets applied to insurers large and small, so how does the PRA ensure it does something that is proportionate?”

IAIS executive committee chair Peter Braumuller said: “These proposed policy measures are intended to reduce moral hazard and the negative externalities stemming from the potential disorderly failure posed by a G-SII.

“Each of the proposed policy measures has also been designed to take account of the specific nature of the insurance business model and is the result of intensive and thorough discussion at the IAIS.”

The IAIS said the proposals were based on the FSB’s framework while also reflecting the difference between insurers and other financial institutions.