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

    
 

Japan insurer Mitsui Sumitomo to buy Britain's Amlin for US$5.3b

SEP 8, 20156:24 PM

[TOKYO] Japan's Mitsui Sumitomo Insurance (MSI) said Tuesday it has agreed to buy Britain's Amlin, becoming the latest Japanese insurer to launch an overseas acquisition as it faces slowing growth at home.

The 3.47 billion pound (US$5.3 billion) all-cash deal was expected to be completed by the end of March 2016, the Japanese insurer said.

"The combination will accelerate MSI's strategy of growing its international business," Mitsui Sumitomo president Yasuyoshi Karasawa said in a statement.

Mitsui said the offer represented a 36 per cent premium on Amlin's 492.5 pence closing share price on September 7.

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Both firms operate a portfolio of non-life insurance businesses in the marine, aviation, property and liability sectors, while the British firm has a unit for reinsurance, a type of insurance bought by insurers.

The deal comes after Meiji Yasuda Life Insurance said in July it would buy US-based StanCorp Financial Group for US$5.0 billion, while insurer Tokio Marine Holdings agreed to buy US-based HCC Insurance Holdings for US$7.5 billion in June.

In February another major life insurance firm, Dai-ichi Life, completed the purchase of American Protective Life for US$5.55 billion.

Japanese insurance companies are on a buying spree as they pursue business outside their home market, where a shrinking population has weighed on growth.

AFP

    
 

Major banks' commodities revenue down 25% in first half-report

SEP 8, 20156:06 PM

[LONDON] Global commodities-related revenue at the top 10 investment banks tumbled by a quarter in the first half of the year, due to a retreat in business from the power and gas sectors after last year's surge, a consultancy said on Tuesday.

Revenue earned by leading banks from commodity trading, selling derivatives to investors and other activities in the sector fell to US$2.6 billion from US$3.5 billion in the same period of 2014, financial industry analytics firm Coalition said.

"Despite increased volatility in oil prices and better corporate activity, commodities revenues declined due to (the) absence of prior-year gains from the unusually cold winter," Coalition said.

Last year, a cold winter in North America created volatility and boosted activity in power and gas, while this year trading has increased in the oil sector due to a sharp fall and partial recovery in prices.

Higher volatility in financial markets typically opens up trading opportunities.

The banks' commodities revenue had climbed 9 per cent to US$4.9 billion during the whole of last year, reversing three years of declines, due to increased activity in energy markets as oil went into freefall. Yet revenue was still just over a third of the US$14.1 billion banks racked up in 2008 at the height of the commodities boom.

Many investors have shunned commodities in recent years due to lacklustre performance and as the sector was buffeted by economic events, moving in step with other assets.

The 19-commodity Thomson Reuters/Core Commodity CRB index shed 18 per cent last year and is down 7.5 per cent so far in 2015.

Banks continued an exodus from commodities trading in 2014 due partly to tougher regulation and higher capital requirements after the global financial crisis.

Coalition tracks the following banks: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank , Goldman Sachs, JPMorgan, Morgan Stanley and UBS.

REUTERS

    
 

European banks may face 26 bln euro capital shortfall on new rules: JPMorgan

The bulk of the shortfall is likely to be faced by Raiffeisen Bank, Credit Agricole SA, UniCredit Spa, Societe Generale, Banco Santander and Natixis, JP Morgan said. 

REUTERS

SEP 8, 20155:25 PM

[LONDON] European banks are likely to face a capital shortfall of as much as 26 billion euros if regulators succeed in launching uniform capital ratio requirements by the end of 2018, analysts at JPMorgan Cazenove said.

Europe is introducing a globally agreed set of capital rules that incorporate lessons from the financial crisis of 2007-09, when taxpayers had to bail out several lenders.

JPMorgan's analysis showed 13 out of 35 banks may fail to meet minimum capital needs, with regulators' harmonization efforts likely to reduce average common equity tier one ratio for the sector from 14 per cent to 12.1 per cent in 2018.

The capital rules, that are being phased in through to 2019, will end the bulk of the waivers that some national regulators allow, making it harder for investors to compare banks.

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The harmonization efforts will likely have a capital equivalent impact of 137 billion euros on European banks, with an estimated shortfall of 26 billion euros of common equity tier 1 capital, JP Morgan said.

The bulk of the shortfall is likely to be faced by Raiffeisen Bank, Credit Agricole SA, UniCredit Spa, Societe Generale, Banco Santander and Natixis, JP Morgan said.

Credit Agricole, SocGen and Santander are most likely to cut dividend to address the capital shortfall, JP Morgan analysts said. Others are likely to reduce risk weighted assets and lower leverage exposure.

Only Raffeisen Bank, with a capital shortfall of one billion euros, would still face the risk of dilution while the rest may be able to bridge the gap, the analysts added.

The brokerage upgraded Commerzbank AG to"overweight" from "neutral", saying the German bank should continue to benefit from the European Central Bank's ongoing Quantitative Easing-led asset revaluation in its non-core assets portfolio.

JP Morgan's top picks portfolio includes UBS AG, Deutsche Bank AG, Commerzbank, Lloyds Banking Group , Danske Bank and Nordea Bank.

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