The industry is particularly concerned about the business areas regulators have included in a list of activities they consider “non-insurance”, “non-traditional”, or “semi-traditional”. Regulators are planning to focus capital requirement increases on these operations and may force insurers deemed systemically important to sell them.
Life assurers are so alarmed about the inclusion on the list of variable annuities – financial products that account for significant chunks of their business – that they have demanded regulators single out the topic and hold a dedicated meeting about it.
The industry is also concerned about how other activities – notably third-party asset management, another vital contributor to company profits, and trade credit insurance – will be treated.
Martin Senn, chief executive of Zurich Insurance, said regulators’ planned criteria “create a simple ranking of insurers, which is insufficient to address such a complex matter”.
Regulators are planning to compile a list of insurers they consider too big to fail in April. Up to 48 insurers may be included, although the IAIS has signalled that in practice the number will be “not too high”.
The Financial Stability Board has already imposed across-the-board capital surcharges on 28 of the largest banks after considering more than 70. But Charles Dallara, managing director of the Institute of International Finance, said regulators’ proposals for insurance “borrow excessively from those developed for the banking sector without taking into proper consideration the unique characteristics of the insurance business model”.
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