Last July, the Financial Stability Board (FSB) designated nine large global insurers as global systemically important insurers (G-SIIs), and may add some reinsurers to the list this November. In a report issued on June 3, the Standard & Poor's (S&P) rating agency suggested the merits of the G-SII designation are not clear, and that the cost of additional oversight and potentially higher capital requirements may outweigh the benefits.
Although S&P describes the FSB's intentions as "worthy" and the G-SII as "a positive development for the industry as a whole in terms of leveling the competitive playing field", the agency calls the implementation timetable "aggressive" and notes that the G-SII designation has had no direct rating impact on insurers thus far.
"We recognize that large insurers are systemically important because of the role they play in the financial system. However, we question whether their potential failure poses a systemic risk in the same way that most large banks' would," commented S&P analysts. "As such, the question becomes whether naming certain insurers as G-SIIs enhances financial stability and warrants the resulting costs to insurers and their regulators."