16 April 2012

The Geneva Association: 'Reflections on a High-Quality G-SIFI Designation Process in Insurance'

Activities that are not deemed to be systemically risky should not be considered in the designation of G-SIFIs, irrespective of their size, interconnectedness or substitutability, as they cannot, by definition, pose a threat to the financial system. As set out in the background section of this document, the G-SIFI designation process needs to focus only on the true sources of systemic financial risk, which means looking at the potentially systemically risky activities carried out by an institution. Only insurers engaged in these activities should be considered for G-SIFI designation based on the relevance of these activities in a global context and in relation to the overall finance industry as a whole. The process also needs to take into consideration existing and planned insurance regulation, existing supervisory frameworks, any mitigating factors, and recovery and resolution systems that are already in place to protect the financial system from shocks that might emanate from insurance.

Over the past decades, the insurance industry has established increasingly sophisticated and robust regulatory and supervisory systems, including proven resolution mechanisms that protect not only policyholders but also the larger financial markets. It is the combination of a particularly resilient business model and comprehensive solvency regimes that has contributed heavily to a historic track record of no systemic financial crisis ever emanating from insurance activities.

Any G-SIFI designation process should be of the highest possible quality and be transparent, predictable and reliable. Regulators should explain why and how any potential designation will provide additional protection for the financial system and what the cost to regulators, supervisors, insurance companies, policyholders and the financial market might be of any such designation. The Geneva Association and the insurance industry stand ready to support the design of the designation process with additional analytical input.

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