Speakers of the session
MEP, ALDE Coordinator, Economic and Monetary Affairs CommitteeEuropean Parliament
Member of the Board of Directors, Italian Insurance Supervisory Authority (IVASS)
First Deputy Secretary General, Autorité de Contrôle Prudentiel et de Résolution (ACPR)
Chair of the Executive Committee, The International Association of Insurance Supervisors (IAIS)
Head of Group Qualitative Risk Management, Swiss Re
Executive Vice President, Global Risk Management, Metlife
Member of the Executive Committee, Head of Strategy, Sustainability and Public Affairs, AXA Group
Objectives of the sessionThis session is intended to clarify where we stand regarding the definition of NTNI and HLA and more generally the global framework dedicated to the systemic threats possibly posed by certain insurance groups. The panel will also outline the possible adjustments required as well as the expected evolutions of the insurance landscape globally, provoked or intended by the Global framework.
Points of discussion
What are the lessons learned and the issues raised during the field testing?
- What are the lessons/issues learned from the field testing of the Basic Capital Requirements (BCR) and Higher Loss Absorbency (HLA)?
- What are the possible level playing issues that the new framework for G-SIIs pose to large insurance companies vis-a-vis domestic insurers, G-SIBs, etc.? Is the framework sufficiently risk sensitive, and consistent with the Solvency II EU framework?
- What are the specificities of reinsurance groups regarding systemic risk?
What are the possible adjustments required by the global systemic risk framework for insurance companies according to the field testing and the feedback recieved?
- Are the recent IAIS proposed changes to the GSII Assessment Methodology sufficient to address the concerns raised by insurers e.g. linkage to systemic risk transmission channels, use of relative scoring mechanisms, sufficient consideration of risk management practices, greater designation transparency, etc.? What additional adjustments should the IAIS consider?
- What are the possible adjustments required to the definition of Non Traditional or Non Insurance (NTNI) and to the calibration of the HLA?
- Considering the growing anticipation that the Designation and NTNI discussions are difficult to conclude, what could be alternative approaches to be proposed to stabilize the IAIS/GSII framework?
What are the expected evolutions of the insurance landscape globally, which stem from the global regulatory framework?
- What are the evolutions of the insurance landscape expected from the implementation of the Higher Loss Absorbency capacities, recovery plans, etc. by G-SIIs?
- What would be the impact of the recent court decision concerning MetLife, as well as the AIG move to split its business in smaller entities, on the IAIS/GSII regulatory framework and process?
Background of the sessionIn July 2013 the IAIS developed an initial methodology to identify systemically important insurance groups (G-SII), based on their size, complexity and interconnectedness. It was endorsed by the FSB. The designation as a G-SII has important consequences for firms, including requirements for recovery and resolution planning, enhanced-group wide supervision. These G-SII have also to hold Higher Loss Absorbency (HLA) capital from 2019 onwards, deduced from specific factors applied to G-SII’s exposures within the main categories of activity, in particular on those related to non-traditional insurance and non-insurance (NTNI) ones, which the IAIS considers as an important aspect of the G-SII designation methodology.
These efforts take place in the context of the longer term IAIS project to develop the Insurance Capital Standard (ICS), a global risk sensitive capital requirement standard designed notably to “benchmark” domestic or regional regulatory measures, in order to detect inappropriate ones or macro evolutions of risk and thus avoid possible regulatory arbitrages.
In such a context in 2015, in parallel with the review of the G-SII designation methodology aiming to build on three years of experience, the IAIS launched a review of the NTNI concept. Many issues are already being evoked regarding this global framework.
One of these issues is the ability of the framework to adapt to systemic risk, which constantly evolves as suggested by the current “very low for long interest rates” context, and to take into account the specificities of domestic or regional regulatory frameworks and supervisory practices, and their actual ability to anticipate stressed situations.
In addition, some question the usefulness of just focusing on nine insurance groups, given that none of these G-SII has a global market share of more than 3% yet their size and diversification improve their capacity to deal with certain emerging risks (e.g. cyber attacking, climate changing, population ageing), provided that the investment approaches of the more than 10,000 other insurance companies in the world, were highly correlated.
Whether reinsurance activities can be a source or an amplifier of systemic risk also deserves sufficient debate, taking into account notably the size of ceded risk, technical provisions and the transparency of risk transfer mechanisms.
Other consider that HLA – stemming from a size-driven banking methodology - is not necessarily the appropriate mitigant compared with resolution planning, specific liquidity provisions and more generally risk management and supervisory practices intended to reduce the systemic impact of a failure.
Finally, rather than the current NTNI one, some suggest an activities-based approach, which would designate G-SIIs on the basis of the actual role of these activities on the transmission of systemic risk.
The feedback period ended at the end of January 2016. The IAIS received a total of 35 and 28 responses for the G-SII and NTNI consultations respectively. The data exercise that will inform the G-SII assessment will be launched in April 2016. 50 firms are expected to participate and the FSB will decide on the 2016 G-SII list in November.