Global regulators hold off designating 'too big to fail' insurers

By Huw Jones

LONDON (Reuters) - Global insurance regulators will put off singling out insurers deemed so important to the financial system that they are required to hold extra capital, in a victory for companies such as American International Group (N:AIG) and Prudential (L:PRU).

The International Association of Insurance Supervisors (IAIS) said it wants to replace the list of "too big to fail" insurers, last published in 2016, with a broader framework from 2020.

In the aftermath of the global financial crisis, regulators identified nine systemically important insurers which then face onerous bank-like capital rules to cover potential losses, increasing costs and potentially reducing shareholder returns.

The industry has long argued it played no major role in the financial crisis and should not be treated in the same way as global banks, which must also hold extra capital.

Nine insurers featured on the list published in 2016: Aegon (AS:AEGN), Allianz (DE:ALVG), American International Group, Aviva (L:AV), Axa (PA:AXAF), MetLife (N:MET), Ping An Insurance Group Co of China (HK:2318) (SS:601318), Prudential Financial Inc (N:PRU), and Prudential in Britain.

The IAIS said it was moving away from a "binary" approach of imposing extra measures on a small group of insurers to a "proportionate" application of measures targeted at the activities of insurers that lead to systemic risk.

It has proposed a new framework to come into effect in 2020, after which a decision would be made in 2022 on whether to scrap the list altogether.

Insurers on the list had initially been expected to meet mandatory capital requirements known as "higher loss absorbency" or HLA from January next year.

But the IAIS said on Wednesday that HLA would not be implemented before the start of 2022, and within the new framework it would only be applied on case-by-case "intervention" by supervisors, meaning no automatic application.

The industry has lobbied for regulators to focus on activities rather than issuing extra capital requirements simply because of a company's size.

AIG had to be bailed out by taxpayers in the United States during the financial crisis, but the insurance industry has argued that AIG's problems stemmed from its involvement in complex products linked to home loans rather than mainstream insurance.

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Wednesday's announcement follows a decision by regulators in the United States to remove Prudential Financial from their own list of systemically important financial institutions. Met Life won a court battle to remove itself from the U.S. list.

The Financial Stability Board (FSB), which coordinates financial regulation in the Group of 20 economies (G20), said the new framework would provide an enhanced basis for mitigating systemic risk, if implemented properly.

The FSB said it would review in November 2022 whether the list of insurers should be scrapped or, in light of initial implementation of the new framework, be re-established.