S&P questions logic of systemic risk insurers list

Standard & Poor’s has raised questions regarding the validity of including insurers on a global list of companies regarded as posing a systemic risk to the global financial system should they fail.

The rating agency made further suggestions that the merits of the designation are not clear and may not outweigh its costs for insurers and regulators. It also believes that some proposals may be unnecessary and that the timetable for implementation is aggressive.

Nine large global insurers were designated as global systemically important insurers (G-SIIs) last July by the Financial Stability Board (FSB), which is now considering whether to add any reinsurers to the list.

S&P notes that while being a G-SII comes with additional oversight and potentially higher capital requirements, no rating actions (in either direction) have resulted from the designation thus far. But it also believes that classification as a G-SII may have longer-term credit consequences for these insurers, both positive and negative.

It says, “We recognise that large insurers are systemically important because of the role they play in the financial system. However, we question whether their potential failure poses a systemic risk in the same way that most large banks' would. As such, the question becomes whether naming certain insurers as G-SIIs enhances financial stability and warrants the resulting costs to insurers and their regulators.”