R Street proposes international monitoring of state-controlled insurers
WASHINGTON (Dec. 17, 2012) — State-controlled insurers and reinsurers represent potentially significant sources of systemic risk and should be monitored as such, R Street Senior Fellow R.J. Lehmann argues in comments submitted to the International Association of Insurance Supervisors.
Offered in response to the IAIS’ proposed policy measures to oversee global systemically important insurers, otherwise known as G-SIIs, Lehmann’s comments proposed that international regulators should broaden their definitions to account for the concentrations of risk that could be posed by state-controlled entities like the Florida Hurricane Catastrophe Fund and the United Kingdom’s Pool Reinsurance Co. Ltd.
In particular, Lehmann proposes regulators monitor the way the large catastrophe risk is spread from large residual market entities through post-event assessments on private insurers
“In a market like Florida, where several entities –- Citizens, the Cat Fund, and the Florida Insurance Guaranty Association, which is charged with resolving private insurers that become insolvent –- all rely on post-event assessments to make up for funding shortfalls, private carriers may respond to such assessments by exiting the market,” Lehmann wrote. “This leaves a smaller assessable base of private insurers to bear the burden of the shortfalls, and the potential for cascading insolvencies that ripple out through the market exists.”
The IAIS defines G-SIIs as “institutions of such size, market importance, and global interconnectedness that their distress or failure would cause significant dislocation in the global financial system and adverse economic consequences across a range of countries.” The G-20’s Financial Stability Board is expected to make an initial list of G-SIIs public in the first half of 2013.
For the full text of R Street’s comments, vsit:
http://redesign.rstreet.org/wp-content/uploads/2012/12/RStreet-comments-to-the-IAIS.pdf
R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and branch offices in Tallahassee, Fla.; Austin,Texas; and Columbus, Ohio. Its website is www.rstreet.org.
