There are mixed implications for the insurance firms that have been designated global systemically important insurers (G-SIIs), according to credit rating agency Standard & Poors.
An S&P report, published yesterday, assessed the ratings implication of G-SII status and highlighted both positive and negative ramifications for the firms.
Nine insurers have been designated G-SIIs by the Group of 20's Financial Stability Board. These are: Allianz; American International Group; Assicurazioni Generali; Aviva; Axa; MetLife; Ping An Insurance (Group) of China; Prudential Financial; and Prudential.
'We see the requirements for G-SIIs to hold more capital and to enhance the quality of their capital instruments as positive for the ratings, all other things being equal,' said Rob Jones, S&P's credit analyst.
'However, at the same time, we believe these changes could lead to a higher cost of capital, which we generally see a ratings negative.
'In addition, G-SIIs will face heightened regulatory oversight, and this could also have either positive or negative repercussions - positive in terms of the potential avoidance or early detection of risk, and negative in terms of strategic constraint and regulatory burden.'
G-SII status may encourage a firm to restructure, ring-fencing or divesting itself of systemically risky activities, S&P noted. The status might also enhance an insurer's competitive position in the eyes of customers and investors. Government behaviour towards G-SIIs, however, was unlikely to change.
S&P said G-SII designation was not likely to alter the way it differentiated between insurers and banks deemed to be of global systemic importance.
'Our approach reflects that, whereas G-SIBs [banks] benefit from direct extraordinary government support from their domestic markets, G-SIIs do not,' said the agency.
'We do not anticipate that governments would provide capital or liquidity to insurers since their business models do not generally involve on-demand liabilities that are akin to bank deposits. Furthermore, insurers can generally be run-off (or "resolved" in banking parlance) in an orderly fashion, whereas banks generally cannot.'
