Editor’s comment – Re/insurance: systemic risk mitigation?
But as Stuart Shipperlee, a rating agency veteran, and now Analytical Partner at Litmus Analysis, explains in a briefing note, the IAIS, with its proposal for additional risk-adjusted capital rules for major re/insurers, seems to be joining the regulatory bandwagon for seeing these as a potential source of threat to the global financial system.
He points out that the exact basis for why even the largest re/insurers should be considered to represent a systemic source of risk is debateable to say the least, particularly if that leads to a requirement for additional capital levels over and above those already considered prudent within existing and proposed insurance regulatory regimes such as Solvency II.
Extra capital can mean only one of two things; less re/insurance or more expensive re/insurance. He added that, unlike banking, there is no routine concept of a ‘run’ on an insurer.
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The only potential ‘systemic’ risk would be a huge catastrophic event wiping out much of the reinsurance industry in one fell swoop. But, as Mr Shipperlee points out, that is a risk that really falls outside any reasonable application of regulatory capital rules.
Interestingly, he believes under certain circumstances, ‘far from being a source of systemic risk, re/insurers could be a source of systemic risk mitigation.’
But perhaps insurers shouldn’t worry so much about new regulatory capital rules. After all, Solvency II has once again been postponed, this time to January 1 2016. It’s all starting to feel a bit like a doomsday prophesier who, as the date for the Apocalypse approaches, questions his own forecast and decides to postpone it for a bit.
Is Solvency II likely to stick to this latest timetable? Whilst trying hard to sound positive, EU Commissioner Michel Barnier sounded both irritated and slightly desperate as he announced: “I have always wanted rapid implementation of Solvency II. But the currently planned date is simply no longer tenable. We have therefore proposed this postponement in order to avoid any legal uncertainty, especially for undertakings and supervisory authorities; we have done this only after obtaining assurance from the Council and the Parliament that they would not further change this new application date of Solvency II.”
