(Corrects final paragraph to show FSB, not IAIS, to name risky
LONDON Dec 17 Proposed curbs on insurers aimed
at preventing a repeat of AIG's 2008 taxpayer bailout
could raise the cost of insurance, making more people dependent
on the state, a finance sector lobby group said.
"As currently designed, there is a high risk of detrimental
unintended consequences," the Institute of International Finance
(IIF) said on Monday.
Under draft proposals published in October, big insurers
involved in risky activities beyond their core business, such as
derivatives investment, would have to hold extra capital.
They would also be subject to closer regulatory scrutiny and
would have to draw up detailed plans for winding themselves down
in the event they fail.
The IIF said a capital surcharge, if applied across all big
insurers, would make it harder for them to pool risk, pushing up
the cost of cover and forcing more households and businesses to
rely on the state for protection.
"A blanket capital surcharge may raise the cost of offering
traditional insurance products and result in reduced
availability of products currently meeting social needs," said
Steven Kandarian, chief executive of U.S. insurer MetLife
and vice chair of the IIF's insurance regulatory
The proposals, drawn up by the International Association of
Insurance Supervisors (IAIS), also "borrow excessively" from
parallel regulations designed for the banking sector, and do not
take key differences between the two industries into account,
the IIF said.
Insurers argue they are fundamentally less risky than banks
because they do not lend and their customers cannot withdraw
Although insurers emerged from the 2008 crisis in better
shape than banks, AIG and Swiss Re both required
emergency funding after absorbing big losses on credit default
swaps they wrote. Some smaller insurers in the United States and
the Netherlands also received emergency capital injections.
The IAIS proposals form part of an effort by the G20 group
of countries to do away with the need to bail out failing banks
and insurers because their collapse might destabilise the
The Geneva Association, an insurer-funded think tank, said
on Monday any additional curbs on insurers needed to reflect the
fact they are on average smaller and less intertwined with the
global economy than banks.
The Financial Stability Board, a regulatory taskforce for
the G20 nations, is due next year to publish a list of insurers
that it considers big enough to pose a threat to the financial
system if they were to collapse.
(Reporting by Myles Neligan; Editing by Mark Potter)