Proposed financial measures for ‘too-big-to-fail’ insurers
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The International Association of Insurance Supervisors (IAIS) and the Financial Stability Board (FSB) are seeking to prevent a repeat of the turmoil that followed the collapse of Lehman Brothers Holdings Inc. and bailout of American International Group Inc. (AIG) by proposing financial measures for “too-big-to-fail” insurers.
The pubic consultation document published on the Basel, a Switzerland-based watchdog website, includes the following recommendations and provisions geared towards creating more intensive supervision, more effective resolution regimes and the separation of non-traditional and non-insurance activities:
- By 2016, insurers must start a risk-reduction plan, and should begin to implement measures that include enough capital buffers to absorb losses.
- Non-traditional activities include alternative risk transfers such as insurance-linked securities and financial guarantee insurance. Non-insurance operations include capital market businesses, banking, third-party asset management and industrial activities.
- Life insurance and variable annuities with additional guarantees and mortgage guarantee insurance have been listed as semi-traditional.
- Selling credit-default swaps is considered a non-insurance activity and should carry tougher capital requirements.
(Photo credited to: about.com)
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