Watchdog consults on capital regime

The global insurance watchdog has launched a consultation on how to set up a new system making key firms hold enough capital to avoid a collapse that would pose a risk to the financial system.

The International Association of Insurance Supervisors (IAIS) yesterday released its proposed options for the development of “basic capital requirements” for insurers it deems “globally systemically important”.

The IAIS is inviting responses by February 3 on how to run a system that assesses cross-border risks to firms in cases where it can be difficult to draw meaningful comparisons given different types of assets and exposure.

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The IAIS aims to test the new capital requirements next year, before developing a system of “higher loss absorbancy” rules for insurers.

Regulators identified an initial list in July of nine insurers including AIG, Allianz and the UK firms Aviva and Prudential that it considered systemically important.

This implied they could spark a financial crisis should they become insolvent by setting off a chain reaction through the industry because of their links with other institutions around the world.

The announcement angered some in the industry who argued that insurers, unlike banks, did not cause the financial crisis and should not face a similar regulatory crackdown.

World leaders in the Group of 20 top economies (G20), which have already approved a similar regime for 28 of the world’s top banks, have called for the sector to introduce tougher capital standards by 2019.