XL Group CEO and chairman of the Geneva Association, Mike McGavick was robust in his defence of the industry in an open letter to the Financial Times in which he argued that insurers neither create, nor represent a systemic risk.
Insurers have faced accusations from some regulators that the industry may represent a systemic risk, much like the banks.
Citing the troubles at US insurance giant, AIG, McGavick says that these were as a result of financial guarantees linked to financial products, not the company’s insurance business. The company’s near-collapse has been used by some regulators as a stick with which to beat the insurance industry.
McGavick says that insurers simply do not represent the systemic risk that banks do. Insurance is “funded by premiums paid up front that provide strong operating cash flow without the requirement for wholesale funding”, says McGavick adding that “controlled outflows” meant that insurers acted as stabilisers during the recent financial crisis.
He says that while the industry supports efforts by the G20 to strengthen the resilience of the financial system, regulation from the banking sector should not simply be carried over into insurance. Appropriate regulation would help to increase resilience within the industry and enable it to contribute still further to economies and society, says McGavick.
XL, regulation, AIG