EU watchdog flags new rules for handling failing insurers

Regulators are looking at how they would deal with a failing insurer by applying lessons from banks during the financial crisis, the European Union's insurance watchdog said on Tuesday. 

PHOTO: AFP

SEP 8, 20157:31 PM

[FRANKFURT] Regulators are looking at how they would deal with a failing insurer by applying lessons from banks during the financial crisis, the European Union's insurance watchdog said on Tuesday.

Global regulators are putting in place rules to make sure they could handle the failure of a big bank without disrupting markets as seen when Lehman Brothers went bust in 2008.

Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA), said insurance regulators were now looking at what rules were needed to dealing with a failing insurer. "We need to look at the specific business models of insurers," Mr Bernardino told a news conference in what were among the first comments from a top regulator on the issue.

Applying globally agreed principles on handling failing banks won't be a "copy and paste exercise" for the insurance sector, he said.

The global principles for banks have been written by the Group of 20 economies' (G20) regulatory task force, the Financial Stability Board (FSB).

The FSB is also requiring the biggest banks to issue an extra layer of bonds, known as total loss absorbing capacity or TLAC, that can be written down when core capital buffers are depleted to avoid a government bailout.

Bernardino said discussions among international insurance supervisors on how to apply the FSB principles to insurers were still in the early stages.

Regulators would need "tools and solutions" on how to handle and transfer portfolios held by a failed insurer.

The regulators were also looking at what were the critical functions of a failing insurer that must be kept going to avoid policyholders being hit. "When we will define that and when we will have any decision on that, then any kind of TLAC or any kind of liability structure to avoid that at the end of the day any taxpayer money is used, can be considered," he said.

Speaking personally, he was not convinced that a TLAC equivalent for insurers would be needed.

The FSB has already deemed nine of the world's top insurers, including Generali, Aviva and Axa from Europe, as requiring closer supervision and to hold a certain amount of capital.

REUTERS