Pru and Aviva subject to global regulation rules

The International Association of Insurance Supervisors has identified an initial list of ‘global systemically important insurers’ in response to policy measures to address risks to the world economy endorsed by G20 leaders and global watchdog the Financial Security Board.

The association named the two UK-based insurers together with the US-based Prudential Financial, AIG, Italian insurer Generali, Axa, Metlife and Chinese Insurer Ping An.

The insurers will face enhanced regulatory supervision and greater capital adequacy and loss absorbency requirements.

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Peter Braumüller, chairman of the association’s executive committee, said: “Since the financial crisis supervisors across the sector have worked diligently to address risks to the global financial system from systemically important financial institutions and macroprudential shocks.

“The measures and framework put forth by the IAIS today complete a major piece of this reform in a manner specifically designed for the insurance sector.”

Mark Carney, governor of the Bank of England and chairman of the Financial Security Board, said: “These policy measures will be followed in time by a substantially strengthened comprehensive regulatory and supervisory framework for all internationally active insurers. A sound capital and supervisory framework for the insurance sector is essential for supporting financial stability.”

Industry View

Michaela Koller, director general of industry trade body Insurance Europe, called the identification of firms “inappropriate”.

She said: “Creating a list of global systemically important insurers gives the false impression that insurers are systemically important in the way that banks are, despite their fundamentally different risk profiles.”

In March Prudential was fined £30m by the FSA for rule breaches relating to its failure to inform the regulator of its plan to acquire AIA, the Asian subsidiary of AIG, in 2010. The transaction would have transformed the group’s financial position, strategy and risk profile. A statement by the FSA said the deal had “the potential to impact upon the stability and confidence of the financial system in the UK and abroad”.

Adviser Comment

Peter Chadborn, co-director of Essex-based IFA Plan Money, said: “For the general economy it would make sense to avoid another AIG crisis and I expect that the intention of this regulatory scrutiny is to stop firms getting to the point where they are deemed too big to fail.”