Leading international insurance think tank, The Geneva Association (www.genevaassociation.org), today issued an open letter to the Finance Ministers and Central Bank Governors of the G-20 following an observer meeting of the International Association of Insurance Supervisors (IAIS). The letter highlights the key findings of The Geneva Association’s recent and ongoing research on systemic risk in light of regulatory discussions around systemically important financial institutions (SIFIs).
The text of the letter is as follows:
Core insurance activities do not cause systemic risk
The Geneva Association, the leading international insurance think tank, has a great interest in contributing to the IAIS and FSB work on systemic risk and financial stability, but remains very concerned about the political decision taken to develop a list of insurance SIFIs. This view is shared by the world’s leading insurers given that the core activities of insurers do not pose a systemic risk.
Extensive Geneva Association analysis published in 2010 and recently refined demonstrates that core insurance activities are not a threat to the stability of the financial system. This is a result supported, not only by the global insurance industry, but also by prominent government leaders, politicians, national regulators and industry experts.
The same research indicated that there are two non-core insurance activities that have the potential, in certain circumstances, to be systemically risky (derivatives speculation/financial guarantees and the mismanagement of short-term funding). New analysis shows that a focus on activity-based indicators (not institutions) will target these potential sources of systemic risk whilst also reducing the regulatory resources required for supervision and the scope for regulatory arbitrage.
Indicators of potential systemic risk activity
The Geneva Association welcomes the opportunity to engage with the IAIS in developing systemic risk indicators. These indicators must be embedded in a sound methodology that first identifies systemically risky activities. They then need to measure these activities in a targeted and effective way. Today, The Geneva Association published a methodology that achieves this whilst providing a framework that matches the stated aims of the IAIS and the Financial Stability Board (FSB).
The Geneva Association believes that insurance expertise needs to be directly involved at all times for making well-informed decisions about a potential SIFI status. The IAIS is best placed to coordinate macro-prudential surveillance and indicator-based standards but should rely as far as possible on group supervision and industry input into the current process. The insurance industry is supportive of The Geneva Association methodology and believes that it will contribute in a constructive way to the setup of an effective and efficient process for identifying potentially systemically risky activities and the institutions undertaking them.
Source : The Geneva Association Press Release
