Transparency is a route to avoiding making supervisors’ globally systemically important insurers (GSII) list, according to Fitch Ratings.
Inclusion on the systemic risk list means holding more capital, facing closer regulatory scrutiny, and developing "living will" recovery and resolution plans to wind down in an orderly fashion in the case of insolvency.
The rating agency noted that while higher capital meant ratings safety, this was being outweighed by competitive disadvantage of the onerous requirements for G-SIIs.
Since the original list of nine G-SII insurers was published in 2013, only Italian insurer Generali has been removed, while life insurer Aegon has been added to the list since November 2015.
“Since the introduction of the list in 2013, one of the industry's main concerns is that it can be unclear what factors cause a firm to be included. As part of a review of its assessment methodology, the International Association of Insurance Supervisors (IAIS) responded last week by committing to a more transparent process,” said Fitch.
“In particular, the IAIS said that it will share detailed information and data with firms that might be included on the list before the assessment process is completed. Firms that are not considered prospective G-SII will also be able to request their scores from the initial stage of the assessment. From 2019 the IAIS plans to publicly disclose more information about how insurers scored against key criteria,” said the rating agency.
The latest IAIS list of G-SIIs includes: Aegon; Allianz; American International Group (AIG); Aviva; Axa; MetLife; Ping An; Prudential Financial, and Prudential plc.
MetLife has strongly opposed its inclusion on the list – launching restructuring and selloff plans towards this goal, as well as launching a lawsuit in the US to challenge its inclusion by regulators, which it recently won.
Fellow US insurer AIG has faced pressure to restructure from activist investors, including getting off the systemic risk list.
The insurer remains on the G-SII list, despite attempts to slim down further and paying back all government loans in 2012 from its 2008 bailout, scaling back its operations, and long since exiting the credit default swap activities that caused its near-collapse and rescue.
Greater disclosure would allow an opportunity to present an argument for not being included on the list while regulators’ assessments are still underway, suggested the ratings firm.
“It should also make it clearer if there is a particular product or business area that scored highly in the IAIS' assessment. This could lead to firms disposing of operations so they might be removed from the list. Insurers that are not designated as G-SIIs, but think they might have been on the cusp of inclusion, may also decide to limit growth in certain areas,” Fitch added.