Life - Articles - Moody's comment on IAIS methodology

 “In order to designate G-SIIs, the IAIS will examine insurance products’ features which expose insurers to the macroeconomic environment. For example, the IAIS has identified products with minimum guarantees that the insurer cannot match directly with assets as a source of exposure to the macroeconomic environment. Variable annuities are the typical example of such products. However, the indicators included in the new methodology released by the IAIS will penalize the use of hedging less than the previous methodology, acknowledging the benefits of hedging." 

 "The IAIS also explicitly mentioned that it would consider traditional guaranteed products when there is a high duration gap between assets and liabilities, which is typically the case in the German life sector, as a source of exposure to macroeconomic risk, and as a result of systematic relevance.”

 “In addition, the assessment methodology considers sources of liquidity risks, including the risk of life insurers facing a massive increase in policyholders’ surrenders rates. Hence, the IAIS will measure the exposure to products with limited surrender penalties. Many traditional products sold in Europe, including for example in France or in Italy, may fall into this category.”