Think tank the Geneva Association has warned the Financial Stability Board to slow down its review of firms posing systemic risks to the financial system so that insurers do not face unfair requirements.
In a presentation in Kansas on Thursday, the think tank argues that the urgency of the FSB to complete a methodology judging which firms are systemically important could mean that insurers who pose a risk to the financial system may end up being overlooked.
Similarly, those who are not risky could find themselves included and would likely face extra supervision as a result.
Noting that the sector had never previously been included in discussions of systemic risk before AIG's role in the financial crisis, it calls for insurers to be separated from banks in the designation process.
This would allow more time to decide which may actually pose a risk to the system, instead of simply picking the largest firms in the sector.
The FSB's verdict on systemically risky institutions is expected in November, though the extra requirements insurers may face is unclear.
"We believe in the need for an appropriate and timely response to the recent financial crisis", said Patrick M. Liedtke, secretary general and managing director of The Geneva Association, "but we feel there is no need for undue haste that would deny regulators and the insurance industry the time necessary to conduct this work in a thorough and transparent manner.
"We are urging regulators to decouple the examination of the insurance industry from that of banks and to afford themselves the time and scope to undertake a thorough and focused examination of the insurance industry's role in the financial system."
The think tank also presented a new report at the event, which recommends a framework that could be used in the FSB's mission to identify systemically important insurance firms.
This would class insurers as possibly of systemic risk only if they conduct speculatory derivatives trades or financial guarantees, or if they mismanage short-term funding.
National supervisors would then have to judge the criteria size, interconnectedness, substitutability and timing of these risks.
It also advises looking at qualitative indicators at insurance firms to be considered, such as the risk management oversight through their liquidity risk framework a firm has in place.
Source: http://www.gfsnews.com
In a presentation in Kansas on Thursday, the think tank argues that the urgency of the FSB to complete a methodology judging which firms are systemically important could mean that insurers who pose a risk to the financial system may end up being overlooked.
Similarly, those who are not risky could find themselves included and would likely face extra supervision as a result.
Noting that the sector had never previously been included in discussions of systemic risk before AIG's role in the financial crisis, it calls for insurers to be separated from banks in the designation process.
This would allow more time to decide which may actually pose a risk to the system, instead of simply picking the largest firms in the sector.
The FSB's verdict on systemically risky institutions is expected in November, though the extra requirements insurers may face is unclear.
"We believe in the need for an appropriate and timely response to the recent financial crisis", said Patrick M. Liedtke, secretary general and managing director of The Geneva Association, "but we feel there is no need for undue haste that would deny regulators and the insurance industry the time necessary to conduct this work in a thorough and transparent manner.
"We are urging regulators to decouple the examination of the insurance industry from that of banks and to afford themselves the time and scope to undertake a thorough and focused examination of the insurance industry's role in the financial system."
The think tank also presented a new report at the event, which recommends a framework that could be used in the FSB's mission to identify systemically important insurance firms.
This would class insurers as possibly of systemic risk only if they conduct speculatory derivatives trades or financial guarantees, or if they mismanage short-term funding.
National supervisors would then have to judge the criteria size, interconnectedness, substitutability and timing of these risks.
It also advises looking at qualitative indicators at insurance firms to be considered, such as the risk management oversight through their liquidity risk framework a firm has in place.
Source: http://www.gfsnews.com
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