Fitch Ratings said that newly established transparency about the designation process for globally systemically important insurers could help more to proactively stay off the list in the first place.

The International Association of Insurance Supervisors, a global standard setting body for the insurance industry, first published its initial assessment methodology in 2013. IAIS officials released an updated assessment methodology on June 16 as part of its three-year review cycle, and Fitch said that it is much more transparent than the previous iteration.

“Greater disclosure to firms will give them an opportunity to present an argument for not being included on the list while the assessment is still under way,” Fitch said. “It should also make it clearer if there is a particular product or business area that scored highly in the IAIS’ assessment.”
If the high score happens and is known early enough in the assessment process, Fitch added that the knowledge “could lead to firms disposing of operations so they might be removed from the list.”

“Insurers that are not designated as [globally systemically important insurers], but think they might have been on the cusp of inclusion, may also decide to limit growth in certain areas,” Fitch added.

The initial list of nine insurers included AIG and the life insurer MetLife. Generali was also on the list but has been removed, and Aegon was added, Fitch noted.

To be placed on such a list is a big deal. As Fitch noted, insurers placed on the list (such as AIG), must “hold more capital, face closer regulatory scrutiny, and develop recovery and resolution plans.”

The high capital helps overall for insurers’ credit lines, but Fitch pointed out the extra requirements risk placing firms at a competitive disadvantage.

The 2016 IAIS methodology outlines a five-phase approach to the assessment process that it said involves fact-based qualitative and quantitative components. Some of the assessments have been modified related to indicator responsiveness, connection with systemic risk and data quality.

What is new: the use of absolute reference values for derivatives trading (CDS or similar derivatives instrument protection sold), financial guarantees and reinsurance indicators. Also, the 2016 methodology covers all types of insurance and reinsurance, plus other global insurer financial activities.

To read the updated assessment methodology in detail, go to www.iaisweb.org.

Sources: Fitch Ratings, IAIS