Insurance Europe has responded to an International Association of Insurance Supervisors (IAIS) consultation on how to define non-traditional, non-insurance (NTNI) activities and products.
The identification of NTNI activities and products is important for the macro-prudential supervisory measures developed by the IAIS and the Financial Stability Board. The concept is used in the designation of global systemically important insurers (G-SIIs) and the calculation of potential capital add-ons (ie higher loss absorbency requirements).
In its response, Insurance Europe stressed that policy aimed at targeting macro-prudential concerns should not overlap with rules that focus on micro-prudential issues, as this would lead to a double-penalisation of certain business. One example is the counterparty default risk which is considered by the IAIS as a transmission channel of vulnerabilities to the financial system. This risk is in fact already reflected in the capital requirements under Solvency II and in many other jurisdictions’ micro-prudential framework and should not be in the scope of macro-prudential regulation.
Insurance Europe also highlighted the importance of the consideration of derivatives as a valuable risk-mitigation tool in the NTNI identification process. The IAIS approach is to consider risk exposures and vulnerabilities by disregarding the existence of derivatives as a risk hedging tool. By taking this stance the IAIS ignores the intentions and achievements of the G-20 derivatives reform initiated in 2009 and aimed at precisely addressing systemic risk in the derivatives market.