26 September 2012

FT: Regulators ease insurer surcharge fears

Regulators trying to prevent a repeat of the failure of insurer AIG are minded to slap capital surcharges on the non-traditional business of global insurers, according to participants in a private meeting between industry and policy-makers.

The Financial Stability Board was leaning against relying purely on a bank-style capital surcharge on the entire balance sheet and was likely to apply targeted surcharges, the people said. The FSB has been working for several years on plans to make big financial institutions of all kinds more resilient. Last year, it imposed across-the-board capital surcharges on 29 of the world’s largest banks. Now an FSB committee chaired by Lord Turner, who also heads the UK Financial Services Authority, has turned its attention to insurers.

Regulators announced in the spring that as many as 48 insurers in 13 countries could be designated as “systemically important”. The criteria gave heavy emphasis to involvement in non-traditional insurance and non-insurance activities – but also included size and links to the rest of the financial system.

On Wednesday, Lord Turner and other regulators met in the City of London with representatives of 15 global insurers and more than a dozen industry groups to discuss the process. The closed-door event marked the first time that regulators have given any hint as to the possible consequence for an insurer that is tagged with the “global systemically important financial institution” (G-SIFI) label.

One person with knowledge of the meeting said regulators appeared to be saying that “big insurers won’t be penalised simply for being big”. Another said: “Regulators feel there’s no need for an extra capital surcharge [on traditional business], but nothing was decided for sure”.

The FSB, which sets global regulatory policies and then seeks endorsement from the leaders of the G20 leading economies, has said it hopes to have a draft of its proposals by the end of October and to finish the G-SIFI insurance process by the end of this year.

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