Geneva Association: Cross industry analysis: 28 G-SIBs vs 28 insurers - Comparison of systemic risk indicators

11 December 2012

Leading international insurance think tank, the Geneva Association, has today published a cross-industry analysis comparing the named 28 Global Systemically Important Banks (G-SIBs) to 28 of the world's largest insurers on indicators of systemic risk.

John H Fitzpatrick, Secretary General of The Geneva Association, said: “This research represents the first empirical and quantitative comparison of insurers and banks using the comparable criteria required by the International Association of Insurance Supervisors’ (IAIS) data calls. The purpose of this analysis is to provide policymakers and other stakeholders with a factual analysis that quantifies the systemic risk of banks versus insurers on these criteria to support their decision-making."

Conclusions of the analysis include the following:

• Insurers are significantly smaller than banks. Furthermore, as insurance liabilities are substantially matched against their assets, an insurance balance sheet is much less systemically risky than that of a bank of comparable size.
• Insurers write considerably less CDS than banks.
• Insurers utilise substantially less short-term funding than banks. Maturity transformation (borrowing short to lend long) is central to the business model of many banks and is a principle source of their systemic risk.
• Insurers are much less interconnected to other financial services providers than banks. If issues develop in derivative markets it is more likely to have an impact on banks than insurers.

Fitzpatrick continued: “We believe that this research will provide facts useful to regulators and supervisors when they are considering the designation of systemically important insurers. What is clear is that insurers’ involvement in these systemically risky activities is significantly lower than that of the 28 G-SIBs. Furthermore, insurers generally match assets with long-dated liabilities and are thus less exposed than banks to the systemic risk caused by borrowing short to lend long.”

Daniel Haefeli, Head of the Insurance and Finance Programme at The Geneva Association, added: “The designation process for global systemically important insurers needs to reflect the facts as described in this report and the specific characteristics of the insurance industry and its business model. If the designation process is not well targeted and not appropriate, the resulting policy measures could reduce the amount of insurance coverage available in the market place. Reducing insurance coverage available could negatively affect global growth potential at a time when the world can least afford it.”

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