ABIR Comments: IAIS Non-Traditional Non-Insurance (NTNI) and Products
FINAL ABIR COMMENTS
IAIS Non-Traditional Non-Insurance (NTNI) and Products
The Association of Bermuda Insurers and Reinsurers (ABIR) represents the public policy interests of Bermuda’s international insurers and reinsurers that protect consumers around the world. With headquarters and operations in Bermuda and with operating subsidiaries in the United States and Europe, these carriers do business in more than 150 countries.
We appreciate the opportunity to provide comments on the IAIS Non-Traditional Non-Insurance (NTNI) and Products Public Consultation Document (CP) and we note that the IAIS describes this Consultation as the ‘first step’ in a three step process to clarify the NTNI concept and as such much work will be needed to reach any conclusions on the determinant nature of what constitutes a NTNI. The NTNI principles included in Annex 2 will require testing and ABIR supports the IAIS’ commitment to assess and classify NTNI products and activities and then identify gaps and the necessary modifications to the framework and existing principles with input from stakeholders as appropriate. GFIA would like to underscore that it is paramount that the relevant stakeholders be part of this process in order to achieve the best possible outcomes in this regard.
ABIR notes that the paper does not describe how property and casualty insurance is to be treated by the NTNI framework. Annex 1 lists “certain types of property and casualty/liability insurance” as a product category for potential review which is broad. Broad references to property and casualty insurance for review does not make sense in light of the IAIS’s prior statements. In its November 2011 insurance and financial stability (IFS) paper, the IAIS stated that, “based on information analysed to date, for most lines of business there is little evidence of traditional insurance either generating or amplifying systemic risk within the financial system or in the real economy. Of course, empirical assessments about the systemic importance of insurers and insurance groups may change over time.” ABIR cannot find any evidence that the IAIS has subsequently changed the classification of property and casualty insurance generally from “traditional.”
Finally, there is ample evidence following the Great Recession that as AIG reduced its market share under pressure from financial regulators that other carriers willingly entered markets and took advantage of opportunities to expand their market shares. (ABIR provided data on this point to the IAIS working group in 2012.) This demonstrates the ready substitutability of insurance carriers in property and casualty insurance markets. Given regulatory freedom on forms and rates property and casualty insurance markets are self-correcting over time. Systemic risk remedies such as capital add-ons tied to certain market segments would stifle or lengthen market corrections since the new carriers would be penalized with higher capital charges in the event they chose to grow in the target business class.