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14th August 2011

KPMG alerts insurers over SIFI possibility

The insurance industry needs to engage more actively with policymakers regarding the future regulatory framework for the industry as it inevitable that some insurers will be classified as systemically important financial institutions (SIFIs).
Jon Pain, co-head of KPMG’s European Regulatory Centre of Excellence, comments “Insurers shouldn’t continue to believe they are immune from the SIFI debate and must accept that systemically important insurers could face significant cost increases from capital surcharges and recovery and resolution plans (RRPs).
The debate is already moving at some pace and insurers need to get actively engaged if they are to influence the outcome. Over the next few months it is imperative that insurers and regulators work closely to get the possible SIFI and RRP framework requirements right. Part of this will be ensuring the banking model is not blindly followed. Of course insurers are not banks but regulators are already asking how the RRPs would work for insurers.”
In a new report, "Systemic Risk and Resolution and Recovery Plans: The need for a broader debate", KPMG highlights that while the Financial Stability Board (FSB) has focused primarily to date on the banking sector, the insurance industry is very much on their radar with the International Association of Insurance Supervisors (IAIS) due to make recommendations on these issues to the FSB shortly.
Drew Fellowes, UK head of insurance at KPMG, comments “This is a complex and challenging issue for insurers. These additional regulatory requirements on insurers, could have an impact on firms' growth plans, require changes in legal and operating structures and have significant commercial implications, including for pricing. It is imperative that insurers adopt a fresh perspective to enable the industry to find the most appropriate and efficient response to the proposed RRP framework. This will need to take into account other major regulatory reforms already underway. As with the banks, the industry should consider how insurers could position themselves to be capable of being resolved without recourse to taxpayer support. In addition to broadening the classification of SIFIs, the industry should be looking at other policy options such as establishing a better ladder of regulatory intervention; development of a better framework for group-wide supervision and consolidated supervision; enhancing their own risk and solvency assessment (ORSA) analysis to include resolvability and increased usage of stress and scenario testing to improve risk appetite and strategic considerations.”