Dear friend,
Next month the Financial Stability Board unveils its updated list of global systemically important insurers (G-SIIs), which is expected to include reinsurers on the list for the first time.
Just how far the list will go has been a matter of intense debate. With the potential for higher capital charges, more onerous reporting requirements, and the need to develop resolution plans, the designation as a systemically important financial institution is as about as welcome as a court summons on Christmas Eve. Is there a single executive amongst those insurers so far designated who has had anything positive to say about it?
Still, we must bow to the superior wisdom of FSB chairman Mark Carney and his colleagues, and accept that the list is coming, and reinsurers will be on it.
Which begs the question- why has it taken so long to get round to reinsurers? After all, the list of the nine G-SIIs came out last summer, and we were expecting an updated list, including reinsurers, this July.
It gives the impression that reinsurance is something of an after-thought. Could it be that in their heart of hearts the regulators themselves appreciate that reinsurance isn't really in same systemic risk league as the big global insurers? Yes, a Swiss Re or Munich Re is large, global and inter-connected, but does that really imply a systemic risk? Would a large reinsurer going into run-off really bring down the whole house of cards?
For what it is worth I think size and connectedness are not the issue here- I agree with Scor's Denis Kessler that there is sufficient capacity in the market to replace a defaulting insurer. What I do think could be more pertinent here is the 'non-traditional' reinsurance criteria for designation.
Of course the term itself is somewhat woolly, but if we take it to embrace activities such as financial reinsurance or the leveraging of collateral, activities which nudge reinsurers more towards the banking world than traditional insurance risk, then I think an argument could be made that such activities potentially pose more of a systemic risk. And let's not kid ourselves that reinsurers aren't wading into these troubled waters again...
Marcus Alcock
Editor, InsuranceERM