FSB suspends systemic insurer spotting

The Financial Stability Board (FSB) is scrapping its annual exercise to identify systemically important insurers, in favour of efforts to address systemic risk by the International Association of Insurance Supervisors (IAIS).

In the wake of the global financial crisis, the FSB launched a process of identifying banks and insurers that are considered systemically important, and subjecting those firms to added regulation in light of the heightened risk, to the global financial system, if any of those firms were to fail. The initiative sought to address the systemic and moral hazard risks that could arise when financial institutions are too large, or too connected, to be allowed to fail.

Now, however, the FSB is discontinuing the practice for the insurance sector, citing the implementation of the IAIS framework for assessing and mitigating systemic risk.

In a release, Vicky Saporta, IAIS executive committee chair, said that the policymakers at the FSB and IAIS agree that the IAIS framework “provides a more effective basis for assessing and mitigating systemic risk in the insurance sector” than the FSB’s process.

“Going forward, it will be important to continue refining the global risk assessment and ensuring robust implementation of supervisory measures, with strong engagement of insurers and supervisors,” added Jonathan Dixon, secretary general of the IAIS, an industry standards setter.

To that end, the IAIS also launched a public consultation seeking input on its methodology for calculating individual insurers’ systemic risk scores.

In the absence of its annual monitoring exercise, the FSB said that it will now utilize assessments available through the IAIS framework to inform its assessment of systemic risk in the insurance sector, including the possible concentration of systemic risks at an individual insurer.

Based on these inputs, the FSB said that it may publicly announce if it views any individual insurer as systemically important, and the added regulatory measures that it considers necessary to address that systemic importance.

It will also continue to report on insurers that are subject to resolution planning and resolvability requirements, it noted.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.