G-SIIs have been designated using an opaque and arbitrary assessment methodology that provides no guidance to firms on how to reduce their systemic riskiness, experts say.
Nine insurers were yesterday designated as global systemically important by the Financial Stability Board (FSB). These were Allianz, AIG, Assicurazioni Generali, Aviva, Axa, MetLife, Ping An Insurance, Prudential Financial and Prudential. At the same time, the International Association of Insurance Supervisors (IAIS) published its revised assessment methodology and policy measures for G-Siis.
But the IAIS's assessment methodology is facing strong criticism on the grounds that it established no quantitative cut-off point for G-SII designation, preventing firms from knowing what actions would qualify them for GII status or not.
John Fitzpatrick, Geneva-based general secretary of insurance industry think-tank the Geneva Association, says: "Any system that is not transparent and predictable will make it difficult for [regulators] to actually have the insurance industry take the actions they want. They want the insurance industry to reduce systemic risk wherever possible. If you want that behaviour you need to make it clear [the] quantification of these things."
Large, non-G-SII insurers looking to make an acquisition would not be able to know beforehand whether such an action would push it over the threshold into G-SII status, says Fitzpatrick. Similarly, a G-SII would not know whether a divestment or restructuring would disqualify it from the list.
It is understood the FSB, not the IAIS, made the decision on a cut-off point although the association provided guidance based on datasets provided by insurers that were at risk of being designated a G-SII. The IAIS had previously been open to the idea of a cut-off. In its May 2012 draft of the assessment methodology, the IAIS stated: "Among other options, a comparison of relevant public data common to the top-ranked insurers and the current 29 G-SIBs [global systemically important banks], which are related to interconnectedness and common capital market activities could be a reference in finding a cut-off point".
The IAIS methodology is also facing criticism that it uses size as the primary indicator of systemic riskiness, despite the industry's insistence for a more nuanced approach.
The IAIS defended its use of 2011 data, though, claiming the use of previous year information was a pattern established by the Basel Committee's work on designating G-SIBs. From 2014, each revised list of G-SIIs will be published in November to allow the IAIS and FSB to use the most up-to-date company filings.
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