GSII rules will add stability, Moody’s argues - FREE

GSII rules will add stability, Moody’s argues - FREE

Rating agency Moody’s Investors Service has given its verdict on the regulation of global systemically important insurers (GSIIs).

Moody’s described the rules as “credit positive”, for the nine affected insurers on the list from the Financial Stability Board (FSB), the supranational systemic risk watchdog created by the G20 grouping of countries after the 2008-2009 financial crisis.

The ratings firm cited additional regulatory oversight and capital requirements on a group-wide basis that it thinks will result in improvements in risk management and the development of contingency plans to restore or protect capitalisation in stress situations.

Moody's said it does not expect any major reactions from insurers presently designated as GSIIs, penning a report titled "Insurance -- Global FAQ: GSII, IAIG Rules Are Credit Positive; Won't Cause Broad Business Model Changes".

The nine insurers on the list (see the table below, taken from the Moody's report) “seem to hold sufficient buffers to comply with the new regulation”, noted Moody’s.

One insurer on the list – MetLife – remains there despite it winning a US federal court ruling in March discounting it from inclusion by the US Treasury’s Financial Stability Oversight Council as a systemically important financial institution (SIFI).

“Notably, the recent ruling in the US regarding MetLife's designation as a , a different concept from GSII, together with a lack of consensus and some concerns expressed in the US around the proposed methodology used to assess capital in the GSII framework, make the implementation of the currently proposed capital requirements in 2019 very challenging,” said Moody’s.

Moody's notes that some of the qualitative aspects of the GSII rules are already being adhered to, “mostly on a voluntary basis”.

Capital requirements for GSIIs will not be binding “before 2019 at best”, Moody’s said, with uncertainty lingering about the timing and the extent to which the rules will be enforced by the various national watchdogs.

"Overall, we consider the GSII regulation to be positive for policyholders and, to a lesser extent bondholders", said Benjamin Serra, vice president and senior credit officer at Moody's.

"Some uncertainties remain for bondholders as, for some securities, coupon deferrals following a breach of regulatory capital requirements or regulatory intervention could be triggered more rapidly than for non-systemically important insurers, as a result of GSIIs' higher capital requirements", added Serra. 

systemic risk list GSII

Source: Moody's Investors Service.


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