Fitch: GSII List Puts Insurers' Business Strategy in Spotlight
OREANDA-NEWS. A change to the list of globally systemically important insurers (G-SIIs) suggests the potential for being added to or removed from the list could play a significant role in setting strategy for some major insurers, Fitch Ratings says.
The list was first published in 2013 and was unchanged last year, but on Tuesday the Financial Stability Board (FSB) removed Generali and added Aegon. The FSB did not explain why it made the switch, but we believe it could have been driven by changes in both firms' exposure to non-traditional and non-insurance business.
Generali in September sold its Swiss private banking arm BSI to BTG Pactual in a deal that significantly reduced its exposure to banking. At the same time, Aegon has increased its exposure to variable annuities, a non-traditional product with embedded options and guarantees that we believe give rise to risks that are complex, long-tailed, and difficult to price, hedge and reserve for.
Inclusion on the list means having to hold more capital, face closer regulatory scrutiny and develop recovery and resolution plans. While higher capital is overall positive for insurers' credit profiles, it could also put firms at a competitive disadvantage. This creates an incentive for insurers to avoid being designated as a G-SII and could lead to them disposing of operations that might be considered non-traditional or avoiding any increase in their exposure in this area.
This is only likely to be a significant consideration for insurers that could be on the cusp of joining the list or those already on it that only have limited exposure to non-traditional business. G-SIIs will be put into one of three "buckets" based on their systemic importance, which will determine how much extra capital they have to hold.
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