Global insurers to face 10% increase in capital charges

 

Global insurers with the greatest ties to the financial system would face an average increase of 10 per cent to capital requirements under new standards proposed by a group of regulators.

The increase would be as high as 18.75 per cent for unregulated-banking activities by firms deemed to be in a riskier tier, according to documents released by the International Association of Insurance Supervisors.

For traditional insurance products sold by safer companies, it would be 6 per cent. Global regulators are seeking to limit risk at the biggest financial firms to avoid a repeat of the government bailouts that were required in the credit crisis.

While more rescue funds went to banks, the US had to prop up insurers led by New York-based American International Group Inc, which was hobbled by losses on derivative bets on sub-prime mortgages.

The potential for systemic risk in insurance may become relevant where insurers significantly deviate from the traditional insurance business model, the association said in a fact sheet. The rules are designed to reduce the probability and impact of distress or failure at a major firm.