Global Financial Strategy - Resolvable insurers cannot be Sifis

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Resolvable insurers cannot be Sifis

Thursday 19 January 2012 – by Patrick M Liedtke

Recovery and resolution mechanisms already exist in the insurance industry and the orderly failure of insurers does not lead to systemic disruption, says Patrick M Liedtke, secretary general and managing director of the Geneva Association.

No other topic has worried nation states around the world more persistently in 2011 than the question of global financial stability.

And with as yet so many unresolved issues, ranging from a reappraisal of the risk-free nature of sovereign debt to significant new regulation and the further strengthening of the global financial system, the topic will remain at the top of the list during 2012 for insurers.

Financial regulation has a profound impact on the way capital markets and financial systems operate as well as the velocity and parameters of their evolution.

Only with a profound understanding of the technical issues can regulators effect sound and efficient reforms, especially for such idiosyncratic industries as insurance.

Insurance is a highly complex business and is not readily comparable with any other, even if they share some common elements. Unfortunately, it is also not always well understood by those outside the industry.

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This creates the risk of a misunderstanding of its operations and raises the likelihood of potentially unintended consequences of a particular regulatory action. The IAIS has been charged by the FSB with dealing with the insurance aspects of the forthcoming regulatory agenda on financial stability.

Their expertise in insurance must be recognised in this process and its recommendations to other bodies need to be respected.

Over the last two years the insurance industry has worked vigorously to clarify the nature of its contribution to financial stability, proving how insurance activities are a stabilising rather than a destabilising element, and clearly demarcated itself from other financial services providers.

The Geneva Association’s research has been instrumental in supporting and advancing those discussions at the international level.

Today, we are focused on examining the resolution and recovery plans that exist in insurance and will be publishing our findings on the subject soon.

It is clear from our analysis and fully consistent with the experience from the past decades that when failures of insurers occur, the recovery or resolution mechanisms and supervisory tools for insurance exist for allowing them to be managed in an orderly fashion and without systemic disruptive effects on the

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