Regulators map out first capital blueprint for insurers

Reuters

* New rules to be finalised in 2016, effective 2019

* Insurers may have to raise capital

* Big insurers say timetable tight

By Huw Jones

LONDON, Oct 9 (Reuters) - The world's top insurers could beforced to raise fresh capital under rules proposed by regulatorson Wednesday that echo measures imposed on the banks to avertanother financial crisis.

The insurance industry says it wasn't to blame for the havocresulting from reckless bank lending, but events at AmericanInternational Group Inc - which had to be rescued by theU.S. government in one of the biggest-ever bailouts - showedrisks can lie outside the banking sector.

The insurance proposals include the first-ever globalcapital requirements for the sector and are designed to protectpolicyholders as well as limit risks to the broader financialsystem.

The proposed rules mirror a global framework built overdecades for banks that has been toughened up since flaws wereuncovered in the 2008 financial crisis.

The new insurance rules are being written by theInternational Association of Insurance Supervisors (IAIS), whichrepresents nearly 140 countries, and will apply to roughly 50top companies from the start of 2019.

The initiative has been sought by the G20 group of leadingeconomies and its Financial Stability Board task force. The G20pledged at the height of the financial crisis to leave no partof the global financial system unsupervised.

Yet insurers say they should not face same type of rules asbanks, concerned they will face the same high costs that bankshave.

The world's biggest banks have already raised billions ofdollars in fresh capital - not just to meet rules imposed by theBasel committee, which supervises the sector - and still have a$155 billion hole to fill to meet new capital rules by 2019.

MANY YEARS

The Geneva Association of 90 chief executives from topinsurers and reinsurers questioned the IAIS deadline and notedrules for the bank sector had evolved over an extended period.

"Development and implementation of global capital standardswithin other financial service sectors have taken many years todevelop," Secretary General John Fitzpatrick said.

The Global Federation of Insurance Associations, a tradebody, said it wants more clarity and detail from the IAIS toensure a standard that is workable for the industry.

"It is important that any capital standard reflects thenature of the insurance business and is not simply the adoptionof a capital standard from another sector," it added.

The new standard will be finalised by the end 2016 and thentested before it takes effect two years later.

When the capital rules for banks were updated, lenders cameunder pressure from markets to comply early and even exceed newminimums that don't come into force until 2019.

The announcement broadens the G20 initiative to increasesupervision of the world's nine biggest insurers, includingGenerali, Allianz, Axa, Aviva and MetLife.

These globally systemically important insurers (GSIIs) willalso form part of the 50 or so insurers that will have to complywith the new global capital rule from 2019.

Before then, the GSIIs must also comply with a temporary"backstop" capital requirement from late 2014, replaced with apermanent higher loss-absorbency rule from 2019 that will sit ontop of the new capital rule.

The IAIS gave no indication of how many insurers may have toraise fresh capital or how much.

Reacting to the announcement, the National Association ofInsurance commissioners (NIAC), the U.S. committee ofstate-level insurance supervisors, said that it will remaininvolved in the development of any such framework.

"Although U.S. state insurance regulators continue to haveserious concerns about the timing, necessity, and complexity ofdeveloping a global capital standard given regulatorydifferences around the globe, we intend to remain fully engagedin the process to ensure that any development augments thestrong legal entity capital standards in the U.S. that haveprovided proven and tested security for U.S. policyholders andstable insurance markets for consumers and industry," the NIAC'schief executive, former U.S. Senator Ben Nelson, said in astatement.

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