MetLife Urges IAIS to Change the Way It Manages G-SIIs
January 28, 2016 by Frank Klimko, Washington correspondent, BestWeek: frank.klimko@ambest.com
NEW YORK – MetLife Inc. wants the International Association of Insurance Supervisors to rewrite the rules for global systemically important insurers to impose penalties for companies that engage in high-risk financial activities and dispense rewards for those who reduce their risk and the potential of another financial calamity.
MetLife’s recommendations were in response to a proposal from the IAIS, which would change the way it designates and manages G-SIIs. MetLife has been designated a G-SII.
In comments submitted to the IAIS, MetLife proposed the IAIS would reward good risk management and provide a clear path to de-risking and an eventual off-ramp for designated institutions. Globally active insurers have complained there is no clear method for getting off the G-SII list.
“Indeed we would say the approach is designed to reward good risk management and incentivize de-risking by giving higher G-SII assessment scores to insurance business models that take on greater risk,” said the company, the country’s largest life insurer.
“The principal objectives of MetLife’s proposal are to provide an explicit link between the indicators and systemic risk transmission channels,” the company wrote, “and reflect differences in insurer business profiles and risk management practices.”
In the third quarter of 2015, MetLife Inc. and Prudential Financial Inc. were ranked among the top five risky U.S. financial firms by New York University economists. Both companies have been designated systemically important financial institutions by Financial Stability Oversight Council, exposing them to higher capital standards and increased supervision (Best’s News Service, Dec. 15, 2015).
MetLife suggested the IAIS emphasize the need for a multi-stage designation process that goes deeper than the current numerical indicators by incorporating measures better aligned with the insurance business model. And, the G-SII designation criteria should include a vulnerability analysis (probability of default) as part of the qualitative Phase III assessment.
The company also addressed questions on the characteristics of activities that IAIS considered “nontraditional/non-insurance.” Trade groups recommended global supervisors eliminate the traditional/nontraditional distinction and focus instead on whether the products cause “systemic risk”(Best’s News Service, Jan. 25, 2016).
MetLife suggested global regulators use just four quantitative assessment indicators during Phase II — size, interconnectedness, substitutability and asset liquidation — and eliminate the nontraditional/non-insurance activities metric.
“The NTNI definition as it stands and as proposed does not achieve the goal of assessing for systemic relevance as it is more a measure of probability of default than a measure of impact given default,” the company said. “Furthermore, it is a flawed measure of vulnerability, focusing only on certain types of risk, and failing to consider risk mitigation activities.
