Reinsurance Global Significance postponed

The FSB has further delayed its decision on the systemic risk status of reinsurers. In July 2013, when it published its initial list of G-SIIs, the FSB indicated it would reach a decision on major reinsurers by July 2014. The Society of Lloyds’ systemic risk webpage now indicates that the decision has been deferred to November 2014.

As with most things Basel III/Solvency II, the designation is material; subjecting firms to enhanced supervision, possible internal ring-fencing, resolution planning and higher capital requirements. Unlike the U.S. SIFI designation, the FSB’s decision is final with no recourse to appeal, although G-SII status is subject to annual review. Unsurprisingly, the insurance industry believes it poses little systemic risk; they do not suffer the same degree of interconnection as banks and their business model is liability rather than asset-driven, thereby reducing exposure to liquidity risk. The International Association of Insurance Supervisors (IAIS) (with a high degree of prevarication) accepts that traditional insurance is unlikely to be a source of systemic risk, the G-SII methodology accordingly focuses on non-traditional or non-insurance (NTNI). However, in the case of reinsurers, issues relating to substitutability and interconnection become both more relevant and more complex. An unresolved approach, a labyrinthine designation process and an already overflowing plate at the FSB; while not expected, a further delay would cause little surprise.