J. Stephen Zielezienski, svp and general counsel for the American Insurance Association (AIA), has filed comments on behalf of AIA in response to the International Association of Insurance Supervisors (IAIS)proposed 31st May Public Consultation Document entitled “Global Systemically Important Insurers: Proposed Assessment Methodology” or G-SII Methodology. AIA’s comments, while acknowledging the IAIS’s general conclusion that traditional insurance activities (and the insurance business model) do not generate the type of systemic risk that would subject companies engaged in those activities to heightened supervision as global “systemically important insurers” (G-SII), reaffirm AIA’s concerns that the G-SII Methodology and the process for developing it may not reflect that conclusion.
“AIA recommends that the G-SII Methodology be modified to include a set of transparent, risk-related comparative benchmarks that can be used to initially screen all types of financial institutions, including insurance companies,” said Zielezienski. “Insurers’ business activities and financial metrics present little, if any, systemic threat to financial stability. Those benchmarks ought to be directly related to the systemic risk potential of a specific company. The inability to meet the benchmarks should only result in the next level of analysis and should not itself be a conclusion as to systemic risk.”
AIA recommends that the IAIS follow US regulations and guidance adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) for determining whether non-bank financial companies, including insurers, should be federally regulated as systemically important financial institutions. The Dodd-Frank rules and guidance suggest a staged approach that relies on comparative metric thresholds across all financial institutions. Such an approach allows low-risk companies like regulated property-casualty insurers to be screened out of the designation process early, so that resources, including requests for non-public data, can be focused on those companies that are a potential source of systemic risk.
“Aligning the G-SII Methodology with the fully developed US SIFI process would also prevent the waste of public and private resources that would result from multiple designation procedures under differing criteria,” said Zielezienski. “Equally important, developing an initial screening process that relies on publicly available data and develops metric thresholds that allow comparisons focused on systemic risk across different types of financial companies would enable companies to determine whether their scope of activities and business model place them in danger of G-SII designation. Intrusive initial data calls from a select list of targeted companies, as currently contemplated under the IAIS process, may not inform the methodology for identifying systemically important companies.”
AIA also urges the IAIS to revise or eliminate some of the assessment categories used in the G-SII Methodology. For example, AIA’s comments suggest that IAIS fold its assessment of a company’s “global activity” into existing considerations of size, interconnectedness, and non-insurance activity. The G-SII Methodology should be focused only on company characteristics and activities that will be a threat to financial stability. Finally, AIA believes that the IAIS should establish a mechanism for companies that are G-SII designees that ensures advance notice and the ability to contest any findings, and strengthens a group-wide supervisor’s ability to challenge a determination on behalf of the company.
AIA has a strong interest in working on behalf of our members to ensure that the G-SII Methodology focuses on activity and companies with the potential to be a source of systemic risk and that it does not reflect a simple ranking of companies engaged in insurance activities that are unlikely to be a threat to financial stability. We will continue to work with the IAIS toward achieving that goal,” concluded Zielezienski.
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