Last Updated 1/19/2021
Overview: The severity of the 2008 global financial crisis underscored the interconnected nature of financial institutions, as well as the risks they pose to the financial system when they are in distress. Phrases like "too big to fail" and "systemically important" continuously made news headlines in the midst of the crisis. While the insurance industry was not the root cause for of the financial crisis, insurance markets have become increasingly global and interconnected, and activities they engage in have become increasingly tied to the financial markets. As such, the Financial Stability Board (FSB) asked the International Association of Insurance Supervisors (IAIS) to set up a process to assess insurers' systemic risk, and to recommend policy measures designed to prevent catastrophic failure in the sector.
In July 2013, the FSB identified an initial list of nine multinational insurance groups it considers to be global systemically important insurers (G-SIIs), including three based in the United States (American International Group, MetLife, and Prudential Insurance). These insurers were identified on the belief that should one of them become insolvent and fail in a disorderly manner, it could have negative impacts on the stability of the global financial system. The IAIS assessment and FSB identification became an annual process, with the FSB and IAIS developing a framework of policy measures to be applied to G-SIIs with the objective of reducing the negative externalities stemming from the potential disorderly failure posed by a G-SII.
This framework of G-SII policy measures consisted of three main elements: (a) higher loss absorbency (HLA) requirements which; (b) enhanced group-wide supervision, including for the group-wide supervisor to have direct powers over holding companies and to oversee the development and implementation of a Systemic Risk Management Plan and a Liquidity Management Plan; and (c) group-wide recovery and resolution planning and regular resolvability assessments.
While the annual assessment process resulted in some changes to the original 2013 list, the three insurers based in the U.S. remained on the list. However, in 2017 and 2018 the FSB, in consultation with the IAIS and national authorities announced its decision not to publish a new list of G-SIIs saying it welcomed work of the IAIS being undertaken to develop an activities-based approach to systemic risk.
This work eventually became the IAIS holistic framework which was adopted in November 2019. Following its adoption, the FSB decided to suspend G-SII identification as of the beginning of 2020. In November 2022, based on an assessment of the initial years of implementation of the holistic framework, the FSB will review the need to discontinue or re-establish an annual identification of G- SIIs. Accordingly, the IAIS is undertaking a two-phase process to help inform the FSB’s review consisting of a baseline assessment and a targeted jurisdictional assessment.
Status: The NAIC is actively engaged through its IAIS representatives as the holistic framework is operationalized and its implementation assessed.. The NAIC Financial Stability (EX) Task Force mission is to consider issues concerning domestic or global financial stability as they pertain to the role of state insurance regulators and serve as a forum to coordinate state insurance regulators' perspective on a wide variety of issues arising from the designation of U.S. insurance groups as "systemically important" both pre- and post-designation, including analyzing proposed policy measures regarding supervisory standards for global systemically important insurers. In 2017 the NAIC launched the Macro Prudential Initiative (MPI), reflecting the global shift to viewing systemic risk from an EBA to more of an ABA basis. The MPI is considering a range of new or improved tools to monitor and respond to risks in the insurance sector.
Committees Active on This Topic
FSB publishes 2016 G-SII list
Averting Systemic Risk Issue Brief
Navigating the Regulatory Alphabet Soup
July 2014, CIPR Newsletter
International Regulatory Developments on Group Capital Standards
April 2014, CIPR Newsletter
Testimony and Speeches
Global Capital Standards: Implications for the U.S.
Michael F. Consedine
Testimony Before the Subcommittee on Housing and Insurance Committee on Financial Services Regarding: The Impact of International Regulatory Standards on the Competitiveness of U.S. Insurers
Senator Ben Nelson, NAIC CEO
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