NU Online News Service

The Property Casualty Insurers Association of America (PCI) said it plans to lobby international regulators not to treat insurers as if they pose the same systemic risk as banks.

"Insurers do not represent a "systemic risk," and therefore should not be regulated like banking institutions, is the message PCI said it will deliver to the International Association of Insurance Supervisors (IAIS) meeting this week in Basel Switzerland.

IAIS is an international association that represents insurance regulators and supervisors of 190 jurisdictions and PCI said the organization's Technical Committee will be discussing systemic risk as it relates to insurers in Basel.

PCI said it will urge the IAIS to "carry to bodies such as the G20 and the Financial Stability Board the message that insurers should not be regulated like banks."

PCI noted that in April 2009 the Group of Twenty (G-20) Finance Ministers and Central Bank Governors, called for the IAIS and other financial supervisors to develop "broad, system wide regulatory tools to address systemic vulnerabilities and provide national authorities, which are responsible for their implementation, with options to consider."

As part of the discussions, PCI said, the IAIS is considering whether current insurance regulatory frameworks need to be adjusted or amended to address the "too big to manage or supervise" issue.

Steven Broadie, vice president, financial policy for PCI, said in a statement, "The U.S. property casualty insurance industry is stable, healthy and does not represent a systemic risk."

He added that, "insurance is a critical part of the international economy and it is important that it be supervised correctly. This is why it is important for the IAIS to be involved with the G20, the FSB [the international Financial Stability Board] and other high-level bodies whose activities will affect the regulation of the entire financial services sector, including the insurance industry."

Broadie remarked that, "International financial services regulation at the highest levels appears to be heavily bank-centric. We believe it is the role of the IAIS to protect the one sector of the financial services industry where regulation has worked well."

Major insurers, he said, have failed before without having systemic effects or creating any major market dislocations, and policyholders and claimants have been made whole. He also said size limitations are unnecessary for non-life insurers because size did not adversely affect insurer solvency during the financial crisis.

Regarding IAIS efforts to explore whether insurance business models should follow banking models for certain activities such as investments, Broadie said PCI's position is, "We do not believe that non-life insurers in general were vulnerable to the crisis."

The conservative nature of insurer investment policy, insurance supervision and the fact that non-life insurers cannot be nearly as leveraged as most other financial institutions meant that those companies had adequate capital built up to withstand the storm, PCI said.

"Given the difference in results during the financial crisis, shouldn't banks and their regulators be looking at getting closer to the insurance business model? If there is a financial industry business model that worked during the financial crisis, it is the insurance model," Broadie concluded.