04 January 2016

Insurance Europe: Response to the FSB consultation on effective resolution strategies for G-SIIs

Insurance Europe acknowledges and welcomes the Financial Stability Board’s (FSB) decision to limit the scope of the “critical functions” definition. However, the ultimate aim that the “critical functions” concept tries to achieve has still not been unambiguously defined. Therefore, Insurance Europe believes that a further clarification of this aspect is needed. There should also be recognition that designation of systemically important insurers and identification of critical functions are very different, and policymakers should not mix up these two approaches.

Insurance Europe also welcomes the degree of flexibility introduced by the FSB to the approach to resolution strategies, including points of entry into resolution. This reflects the wide range of organisational structures in the insurance industry.

Insurance Europe emphasises the importance of applying appropriate resolution tools and strategies, which are adapted to the reality that insurers’ failures occur and can be managed over a long period of time.

Insurance Europe welcomes the FSB’s preference for portfolio transfers in the proposed guidance. Indeed, along with run-offs, portfolio transfers are sufficient to deal with the majority of insurance failures and these should therefore be the most preferred resolution tools.

In the proposed guidance, it should be made clearer that a critical shared service supports a critical function. If the identification of critical functions triggers the imposition of additional requirements, these should provide sufficient benefit to justify the additional costs involved.

The systemic risk potential of reinsurers is significantly limited by several factors: the total size of the reinsurance market is small compared to the size of the insurance market, there is no network-like inter-insurer market (so potential contagion channels are slow and tractable), there are low barriers to entry in the industry and know-how is highly transferrable (therefore, there is high substitutability). The last two considerations also apply to primary insurers.

Position paper

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