Table 2: Potential Credit Upsides And Downsides Of Being Designated A G-SII* Positive


Negative More capital


Higher quality of capital More regulatory oversight


Perceptions of government support *G-SII = Global Systemically Important Insurer


task. Although we expect it to deliver the basic capital requirement as planned in November, we also believe significant later modifications are likely as work continues on the other elements of the ICS, including the higher loss absorbency for G-SIIs (by 2015) and the comprehensive ICS design (by 2016). The basic capital requirement, higher loss absorbency, and ICS won’t be “hard” capital tests that require insurers to act on deficiencies until 2019, but we expect them to influence regulatory supervision before then. Many fundamental questions about ICS remain open, including: • Will it be a target or minimum level? • Will it render basic capital requirements redundant?


• What happens if an insurer’s capital is deficient?


• What authority will a group supervisor have over national supervisors?


• What laws and regulations are needed to enforce the ICS?


• How will the ICS and basic capital requirements interact with existing and planned regional or national capital standards?


The ICS regime will not be confined to G-SIIs. It will also apply to insurers the IAIS designates as Internationally Active Insurance Groups (IAIGs), which we expect to number approximately 50. The approach to IAIGs (known as ComFrame) is currently undergoing field testing and will add a new layer of supervision for large insurers with significant international operations.


So Far, G-SII Designations Have Had No Direct Rating Impact


We’ve taken no rating actions on insurers thus far as a direct consequence of a G-SII designation. However, there are potential credit upsides and downsides in the longer term (see Table 2 for an overview), which we


Global Reinsurance Highlights 2014


“The G-SII designation might create an expectation, however misguided, of


government support in the eyes of customers and investors.”


first anticipated in “Rating Implications For G-SIFI-Designated Insurers,” published June 28, 2011.


G-SIIs may be required to hold more capital or enhance their quality of capital, both of which would be positive for the ratings, all other things being equal. However, a resulting higher cost of capital would partly offset this benefit and would be a credit negative if financing costs rise, which could in turn tilt the competitive playing field toward non-G-SII players. G-SIIs will also face heightened regulatory oversight, which may be negative in terms of cost and management time. However, this oversight might cause G-SIIs to avoid potentially risky activities, which could protect their ratings. A G-SII might also be motivated to restructure, for example, by divesting itself of activities that the FSB perceives as more systemically risky, but we might not regard as risky from a ratings perspective. A number of these activities, notably third-party asset management, contribute positively to some of the G-SIIs’ current ratings.


Finally, the G-SII designation might create an expectation, however misguided, of government support in the eyes of customers and investors. This would be


positive for G-SIIs’ ratings, if it provided them with a competitive edge over non-G- SIIs. However, we’ve seen little evidence of this perception—which would not, in our view, reflect reality—so far, nor efforts by G-SIIs to nurture it. As we’ve stated, we don’t incorporate expectations of government support into our ratings on insurers, unless they are government- related entities. The creation of the G-SII designation has not altered our view. Ultimately, the net impact of the designation may be negative for some G-SIIs and positive for others. The picture will become clearer as the new regime takes shape and the G-SIIs take management actions to respond. 


Rob C Jones


London, (44) 20-7176-7041 rob.jones@standardandpoors.com


Connie Wong


Singapore, (65) 6239-6353 connie.wong@standardandpoors.com


Volker Kudszus


Frankfurt, (49) 69-33-999-192 volker.kudszus@standardandpoors.com


Tracy Dolin


New York, (1) 212-438-1325 tracy.dolin@standardandpoors.com


Dennis P Sugrue


London, (44) 20-7176-7056 dennis.sugrue@standardandpoors.com


Ron A Joas, CPA


New York, (1) 212-438-3131 ron.joas@standardandpoors.com


Matthew A Walker


New York, (1) 212-438-9375 matthew.walker@standardandpoors.com


53 Higher cost of capital


Potential shift in the competitive playing field with non-G-SIIs Regulatory cost


Disposal of credit positive, but systemically risky activities


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