Other parts of this series:
- North American insurers face international capital standards
- Several tough challenges for too-big-to-fail insurers
- Potential changes in capital standards could affect largest, international carriers
- Some capital standards deadlines missed, others are ambitious
- How insurers should respond to international capital standards
Insurers in North America and around the globe have reacted in a variety of ways to the international capital standards that the International Association of Insurance Supervisors (IAIS) has drafted and is beginning to implement.
As Accenture notes in its report, “The Rise of Global Standards and How Insurers Can Comply,” some insurers are just waiting for more information. On the other end of the spectrum are those that have been publicly critical. They argue that the standards should be aligned with other regimes, such as Solvency II in the European Union, and that imposing additional capital requirements now in difficult market conditions could hurt insurers’ business models.
Global Systemically Important Insurers (G-SIIs)—the nine US, European and Asian insurers considered too big to fail and, therefore, subject to the toughest capital standards—are taking a variety of positions. Some have accepted their designation and have committed to comply with the higher capital requirements and other policy measures. Some are taking a wait-and see approach. Some are reshaping their company structure by carving out parts of their business. For example, Italian insurer Generali managed to escape a systemic designation in the latest update of the G-SII list by reconfiguring its business model. Generali enhanced its capital position, mainly by selling its private banking business. Still others are challenging their G-SII designation in court.
We believe that the best course of action for G-SIIs may be a combination of these strategies.
G-SIIs should evaluate their ability to identify their non-traditional and non-insurance (NTNI) activities, assess their alignment with risk strategy and enhance their enterprise risk management (ERM) capabilities. Underestimating the amount of work needed to implement these measures, could put even more pressure on actuarial, finance and risk resources, as well as increase the need to foster cooperation between internal departments and the regulatory supervisor.
We also urge insurers to review the new capital measurers as soon as possible. Those measures could change the playing field and present new opportunities for new subsidiaries, mergers and acquisitions, and the development of new financial and asset liability management strategies. So the sooner insurers review these different requirements, the better they will be prepared to anticipate potential higher capital charges and to adjust their business models accordingly.
Insurers should keep a close eye on the wide package of IAIS measures, which involves more than just capital. Remember, these measures could affect insurers of every stripe: G-SIIs, Internationally Active Insurance Groups (IAIGs) and Domestic Systematically Important Insurers (D-SIIs). Insurers also should bear in mind that the criteria that determines which designations insurers will be assigned is in a state of flux and that a carrier’s own activities could result in a change designations, perhaps earning it an IAIG or even a G-SII label. We also suggest that G-SII-designated carriers consider field testing and communicating their perspectives and thoughts on the designation with their local regulators.
To learn more about the study, read “The Rise of Global Standards and How Insurers Can Comply.”