CEA emphasized that the business model of the insurance industry is fundamentally different from banking, which relies on short-term deposits or short-term debt to cover long-term lending. CEA called for the recognition of different financial services business models.
Ahead of the G-20 finance ministers’ and central bank governors’ meeting and the G-20 Summit, the CEA is hereby pleased to provide you with its key messages in relation to the topics on the G-20 agenda:
· Recognition of different financial services business models and regulatory regimes
The unique characteristics of the insurance business model have protected the insurance industry from the worst impacts of the financial turmoil. G-20 Governments and central banks have intervened with more than $11 000bni of direct and indirect support in the financial services sector, of which less than $10bnii went to the insurance sector. The business model of the insurance industry is fundamentally different from banking, which relies on short-term deposits or short-term debt to cover long-term lending.
· The addressing of systemic risk by focussing on risky activities
Several initiatives at G-20 level address systemic risk and the “too-big-to-fail” problem. Based on the differences in the business models of insurance and banks, the CEA would like to underline that insurance does not generate the kind of systemic risk that arises in banking. There are only a very limited number of non-core activities of insurers that may be systemically relevant.
The CEA is worried that a categorisation of systemically relevant institutions, as suggested by the “too-big-to-fail” discussion, may lead to a false level of comfort by focussing on a few supposedly systemically relevant institutions. It could distract regulators’ attention from those institutions that engage in risk activities or products that may create systemic risks. Furthermore, it could create moral hazard as well as market distortion due to the implied state guarantee.
· Consideration of the impact of excessive capital requirements
The CEA supports G-20 leaders’ commitment to strengthened prudential regulatory standards. The financial crisis also confirmed the need for an economic risk-based solvency regime for insurance and the CEA remains strongly committed and supportive of the Solvency II framework at European level. However, a recurrent tendency at national and international level is to look at individual measures to increase prudential standards in isolation, thereby overlooking the cumulative effect of all proposals. This could lead to the creation of a system with overly prudent regulation, going far beyond the effects sought with any single measure. Excessive capital requirements might not only mismatch regulatory expectations of higher policyholder protection, but also bring a quite worrying downside for policyholders, the overall economy and insurers.
· Payback for the crisis –not to be applied across the board
CEA has noted the G-20 leaders’ request to the IMF to prepare a report “with regard to the range of options countries have adopted or are considering as to how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system”. Furthermore, we are aware that several countries are already implementing or planning initiatives in this area. Unfortunately, this is currently done without international agreement on this issue and without acknowledging the individual characteristics of the different financial sectors.
© CEA - Comité Européen des Assurances
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