Global regulators hold off designating 'too big to fail' insurers

LONDON (Reuters) – Global insurance regulators will suspend designating globally systemically important insurers, who are required to hold extra capital, in a victory for companies such as American International Group (AIG.N) and Prudential (PRU.L).

The International Association of Insurance Supervisors (IAIS) said it wants to replace the list of “too big to fail” insurers, last published in 2016, with a broader framework from 2020.

In the aftermath of the global financial crisis, regulators singled out systemically important insurers who then face onerous bank-like capital rules to cover potential losses, increasing costs and potentially reducing shareholder returns.

The industry has long argued it played no major role in the financial crisis and should not be treated in the same way as global banks, who must also hold extra capital.

Nine insurers featured on the list published in 2016: Aegon (AEGN.AS), Allianz (ALVG.DE), American International Group, Aviva (AV.L), Axa (AXAF.PA), MetLife (MET.N), Ping An Insurance (2318.HK) Company of China, Prudential Financial Inc (PRU.N), and Prudential in Britain.

It was not updated in 2017, and won’t be in 2018 either.

The IAIS said it was moving away from a “binary” approach of imposing extra measures on a small group of insurers to a “proportionate” application of measures targeted at the activities of insurers that lead to systemic risk.

It has proposed a new framework to come into effect in 2020, after which a decision would be made on whether the scrap the list altogether.

The industry has lobbied that regulators should focus on activities rather than issuing extra capital requirements simply because of a company’s size.

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