Insurance firms fight bank-style rules on capital

LARGE insurance companies do not pose the same threat to global economy as big banks and should not be designated as systemically important financial institutions, according to a study published yesterday by the Geneva Association, an industry-funded think tank.

Global regulators plan to impose stricter capital rules on banks in order to avoid a repeat of the 2008 banking crisis and insurance companies fear similar rules could soon apply to them. Twenty-eight global banks have been designated as systemically important financial institutions and will be forced to hold extra capital.

“Insurers are much less interconnected with the financial system than banks,” the report states after comparing the world’s 28 biggest insurance companies – including Prudential, Standard Life and Munich Re – with their banking equivalents.

It found the average big bank holds $1.5 trillion (£930bn) in assets, whereas the figure for the insurance companies is only a quarter of that, according to the study.

The biggest banks have also sold 158 times as much protection through credit default swaps, securities that shield investors from non-payment of debt, magnifying the potential consequences if they go bust, the report said.

Whether the regulators agree with the study will be clear early next year, when the International Association of Insurance Supervisors is expected to publish a list of insurance companies that constitute a risk to the global financial system.

Insurers largely escaped the worst of the financial crisis but in 2008 AIG had to be bailed out after heavy losses in the derivatives market. Today, AIG and its competitors have minimised their exposure, which has left the average bank to owe 68 times more to counterparties on derivatives than the average insurer.