The insurance industry remains concerned about efforts to designate certain firms as systemically important, which would likely bring additional regulatory constraints.

In a letter to the International Association of Insurance Supervisors (IAIS), the Global Federation of Insurance Associations (GFIA) urges the IAIS to consider the questions raised by the industry as it finalizes the process for identifying global systemically important insurers (G-SIIs).

“Some of the open questions are complex, and need careful consideration as the outcomes are likely to have a significant impact on the targeted entities and thus, we believe, further analysis and exchange with the industry should be allowed for,” it says.

In particular, the industry lobby says that it remains concerned about the proposed methodology for identifying G-SIIs, which, it says, will result in insurers being designated “not for the risk they pose to the financial system but because of their size.”

It also says it believes that “the potential systemic risk posed by certain insurers as a result of activities they engage in should be assessed versus the global financial system as a whole, and not versus other insurance companies, as currently suggested.”

And, it maintains that its not correct to think that insurers could benefit from being on a list of G-SIIs, as this status would give them access to more favourable funding conditions. “GFIA wishes to reiterate its strong opinion that such reasoning is excessively bank-centric and has no rationale in insurance,” it says.

Additionally, the letter stresses that the GFIA is worried about the sorts of added regulatory constraints such firms could face. For example, the group says that it “remains fundamentally concerned” about the possibility of firms facing higher capital requirements to address systemic risk concerns in insurance. It says that tougher capital rules should only be considered as a “last resort for specific activities which are a source of systemic risk.”

It also believes that any enhanced supervision “should be risk-based and focused on the source of systemic risk.”; and, says that any requirement for G-SIIs to separate activities should also be considered a “last resort in very limited circumstances, for certain non-insurance activities which raise systemic risk concerns.”