Global financial regulators have decided to move away from gauging the riskiness of insurers based on their size, to assessing firms based on their activities, when deciding whether to subject them to increased regulatory scrutiny, a source told Reuters.
Companies selected for additional scrutiny are required to hold extra capital to cover potential losses, increasing overall business costs.
Reuters said the insurance industry has been lobbying for years for regulators to move to the activities-based approach, stating that a firms riskiness should not be measured by their size.
The Financial Stability Board (FSB), which coordinates financial regulation across the Group of 20 Economies (G20), will shift its approach in how it designates globally systemically important insurers – or GSIIs, following pressure from the U.S. Treasury Department, which has been pushing the FSB to ease up on insurers and asset managers, the source told Reuters.
The Donald Trump administration has promised to overhaul regulations introduced in the aftermath of the 2008 global financial crisis and put U.S. interests first when working with international bodies.
In September, a group of U.S. regulators – the Financial Stability Oversight Council – removed AIG from its domestic list of systemically important insurers, raising questions over whether the carrier would remain on AIGs global list.
The U.S. Treasury is shortly due to release a policy report on the Financial Stability Oversight Council designation process and powers.
AIG was at the heart of the 2008 global financial crisis, labelled “too big to fail” it received a $182 billion U.S. government bail-out, to prevent it from reporting bankruptcy and causing further chaos to the financial system.
According to AIG, the firm repaid taxpayers in full by the end of 2012, with a profit of $22.7 billion.
The source told Reuters that the 2016 list of nine GSIIs – which also includes MetLife, Allianz SE and Ping An Insurance Group Co of China – will continue to stand for at least the next 12 months until the FSB has completed an assessment based on the new methodology.
