FSB LISTS NINE "TOO BIG TO FAIL" INSURERS

The Financial Stability Board (FSB) has designated nine insurers as Global Systematically Important Insurers (GSIIs): Allianz, AIG, Generali, Aviva, Axa, MetLife, Ping An Insurance, Prudential Financial and Prudential plc. Besides having to have higher loss absorbency requirement (HLAs), the GSIIs will each have to establish a crisis management group (CMG), produce a recovery & resolution plan (RRP) and develop "institution-specific cross-border cooperation agreements among relevant resolution authorities". The group of GSIIs will be updated annually, published each November, beginning in 2014. The FSB said that the CMGs should be established for the nine insurers listed by July 2014, while RRPs should be agreed by those CMGs by the end of 2014. The backstop capital requirements will be developed by the International Association of Insurance Supervisors (IAIS) by the time of the G20 summit in Brisbane in November 2014. The FSB said that, building on the above capital requirements, the IAIS will develop by the end of 2015 implementation details for HLA requirements. These will apply from January 2019 to GSIIs identified in November 2017. Peter Braumueller, chairman of the IAIS executive committee, said that “the measures and framework put forward by the IAIS today complete a major piece of this reform in a manner specifically designed for the insurance sector". The IAIS said that the companies included were selected because of their size, internationalism and level of non-insurance activity. Mark Carney, recently appointed Bank of England Governor and FSB chairman, said that “these policy measures will be followed over time by a substantially strengthened comprehensive regulatory and supervisory framework for all internationally active insurers". The inclusion of MetLife and Prudential Financial on the list appears to echo the view of the US-based Financial Stability Oversight Council, despite MetLife and Prudential Financial disagreeing with the FSOC analysis. AIG has accepted that it is a systematically important institution. Allianz CFO Dieter Wemmer said this morning that "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". He added that "Allianz enjoys a widely diversified, resilient business model, a very solid capital base and sustainable profitability. Therefore, we are well positioned to manage the new requirements this designation will lead to regardless of the specific form they take". Prudential UK said that it would be "in discussions with the Prudential Regulation Authority to understand the implications of this designation" and that" once sufficient clarity has been established, the Group will determine its position". Geneva Association chairman Mike McGavick, said that it was "important that the criteria and measurements used to designate a [GSII] are made available as soon as possible and are transparent, predictable and measurable". Without this, he said, "a transparent and predictable process it is impossible for management to monitor and manage systemic risk levels".