Presentation on theme: "Update International Resolution Workstreams NAIC Financial Stability Task Force March 28, 2015 James Kennedy Texas Department of Insurance Representative."— Presentation transcript:
Update International Resolution Workstreams NAIC Financial Stability Task Force March 28, 2015 James Kennedy Texas Department of Insurance Representative to IAIS Resolution Working Group (ReWG)
IAIS Resolution Working Group (ReWG) ReWG reports to the IAIS Financial Stability Committee and the Technical Committee. Its mandate includes: 1.Addressing matters relating to resolution of insurers: Guidance for the resolution of global systemically important insurers (GSIIs) Resolution content of ComFrame and ICPs Standard-setting matters regarding resolution initiated by the FSB 2.Coordinating with external groups (e.g., FSB Insurance Cross-border Crisis Management Group)
ReWG Projects Analysis of debt structure of G-SIIs Policyholder protection schemes Hierarchy of creditors KA Assessment Methodology Cross-border Legal Issues Resolution contents of ComFrame and ICPs Guidance on Critical Functions ComFrame / ICP Resolution Loss absorbing capacity in Resolution
Loss Absorbing Capacity (LAC) Consideration of LAC Concept in Resolution of GSIIs: Proposal to IAIS Technical and Financial Stability Committee whether total loss absorbing capacity (TLAC) for GSIIs is necessary. If TLAC can be an effective policy measure when a GSII fails, then: how much it should be, and where it should be located.
LAC in Resolution of G-SIFIs FSB Key Attributes of Effective Resolution Regimes included in Annex 2 – Resolution of Insurers. To avoid the need for a bail-out with public funds, a systemically important financial institution needs to have sufficient LAC in resolution.
Is LAC Concept Appropriate for GSIIs? Assumptions Supporting Application of LAC to G SIIs: KAs, including the objective of an effective resolution regime and bail-in powers, applies to GSIIs. Some insurers were recapitalized by governments during the financial crisis. Some GSIIs engage in activities similar to those of GSIBs.
However … Business models of insurers and banks are different. G SIIs may not engage in “critical functions”. Insurers typically have significant asset holdings. Insurers are not as susceptible to a “run on the bank”, as they can run-off insurance liabilities as they come due over time.
Concerns TLAC higher capital requirements may not address liquidity needs of troubled insurers Requiring specific types and amounts of debt instruments that convert to equity can be expensive, and change how G SIIs are capitalized Potentially conflicting objectives of financial stability and policyholder protection Bail In concept may suggest that insurance liabilities should be converted into equity or written down to ensure the continuity of critical functions of a GSII
Next Steps ReWG will to present recommendation to parent committees as to whether TLAC can be an effective policy measure for G SIIs. If so, it will be necessary to consider: target amounts of TLAC, and location of capital.