20 June 2016

Fitch: More transparency may help insurers avoid GSII list

Plans for a more transparent approach when designating globally systemically important insurers (G-SIIs) may lead insurers to increase their efforts to avoid being included on the list of G-SIIs, Fitch Ratings says.

Inclusion on the list means having to hold more capital, face closer regulatory scrutiny and develop recovery and resolution plans. While higher capital is overall positive for insurers' credit profiles, it could also put firms at a competitive disadvantage. This creates an incentive for insurers to avoid being designated as a G-SII.

Since the introduction of the list in 2013, one of the industry's main concerns is that it can be unclear what factors cause a firm to be included. As part of a review of its assessment methodology, the International Association of Insurance Supervisors (IAIS) responded last week by committing to a more transparent process.

In particular, the IAIS said that it will share detailed information and data with firms that might be included on the list before the assessment process is completed. Firms that are not considered prospective G-SII will also be able to request their scores from the initial stage of the assessment. From 2019 the IAIS plans to publicly disclose more information about how insurers scored against key criteria.

Greater disclosure to firms will give them an opportunity to present an argument for not being included on the list while the assessment is still under way. It should also make it clearer if there is a particular product or business area that scored highly in the IAIS' assessment. This could lead to firms disposing of operations so they might be removed from the list. Insurers that are not designated as G-SIIs, but think they might have been on the cusp of inclusion, may also decide to limit growth in certain areas.

In general, G-SII designation, while positive for credit profiles, is negative for equity investors because of the potential impact on profitability from higher capital requirements. Increased public disclosure from 2019 could therefore also lead to more pressure from shareholders if the disclosures suggest an insurer might be able to avoid G-SII status.

Press release

IAIS_press release

© Fitch, Inc.