Global insurers with the greatest ties to the financial system would face an average increase of 10 per cent to capital requirements under new standards proposed by a group of regulators.
The increase would be as high as 18.75 per cent for unregulated-banking activities by firms deemed to be in a riskier tier, according to documents released by the International Association of Insurance Supervisors.
For traditional insurance products sold by safer companies, it would be 6 per cent. Global regulators are seeking to limit risk at the biggest financial firms to avoid a repeat of the government bailouts that were required in the credit crisis.
While more rescue funds went to banks, the US had to prop up insurers led by New York-based American International Group Inc, which was hobbled by losses on derivative bets on sub-prime mortgages.
The potential for systemic risk in insurance may become relevant where insurers significantly deviate from the traditional insurance business model, the association said in a fact sheet. The rules are designed to reduce the probability and impact of distress or failure at a major firm.
