IAIS commitment to transparency may help insurers avoid G-SII list: Fitch

The International Association of Insurance Supervisors’ (IAIS) commitment to a more transparent approach may help insurers avoid making the list of global systematically important insurers (G-SIIs).

This is according to rating agency Fitch which explained that plans for a more transparent approach may lead insurers to increase their efforts to avoid being included on the list.

Insurers on the list have to hold more capital, face closer regulatory scrutiny and develop recover and resolution plans. Fitch suggested that while higher capital is overall positive for insurers' credit profiles, it could also put firms at a competitive disadvantage, creating an incentive for insurers to avoid being designated as a G-SII.

Introduced in 2013, one of the industry's main concerns towards the list is that it can be unclear what factors cause a firm to be included, explained the rating agency.

In a review of its assessment methodology, the IAIS responded last week by committing to a more transparent process meaning that it will share detailed information and data with firms that might be included on the list before the assessment process is completed.

According to Fitch, firms that are not considered to be prospective G-SII will also be able to request their scores from the initial stage of the assessment. From 2019 the IAIS plans to publicly disclose more information about how insurers scored against key criteria.

Fitch suggested greater disclosure to firms will allow them an opportunity to present an argument for not being included on the list while the assessment is still under way. It should also make it clearer if there is a particular product or business area that scored highly in the IAIS' assessment.

“This could lead to firms disposing of operations so they might be removed from the list. Insurers that are not designated as G-SIIs, but think they might have been on the cusp of inclusion, may also decide to limit growth in certain areas,” said the rating agency.

According to Fitch, G-SII designation, while positive for credit profiles, is negative for equity investors because of the potential impact on profitability from higher capital requirements.

Increased public disclosure from 2019 could therefore also lead to more pressure from shareholders if the disclosures suggest an insurer might be able to avoid G-SII status.

Since the original list of G-SII insurers was published in 2013, the Italian insurer Generali has been removed. Insurer Aegon was added to the list in November 2015.