Fri Jul 19, 2013 6:00am EDT
July 19 (Reuters) - (The following statement was released by the rating agency)
Insurers included on the Financial Stability Board's list of global systemically important insurers could see a modest improvement in their credit profiles due to the higher risk and capital management standards imposed on them, Fitch Ratings says. However, these insurers' ratings are already high, with little room to improve, and the benefit could be diminished if the extra capital they have to hold for specific products makes them less competitive and damages their market position.
The list published on July 18, 2013 names nine insurers as globally important, listed below. These firms' ratings are already supported by strong capital levels and ratings are more likely to be limited by earnings power and market position than by capital adequacy. However, some insurers do have high debt leverage, which could be reduced by any additional capital they may have to hold. The requirement that GSIIs create a recovery and resolution plan implies governments are less likely to bail out insurers in the future, but this will not affect our ratings because we do not factor in any potential government support.
The decision to apply extra capital requirements only to non-traditional insurance business indicates a focus on risk, rather than just size, and is in line with the approach underlying our ratings. This also limits the impact that the GSII requirements will have on balance sheets, especially as few large insurers any longer underwrite credit default protection products such as those that got AIG Financial Products into trouble. However other products, potentially including variable annuities, may face higher capital requirements. We already view these products as a potential source of risk, which is factored into ratings.
The requirements for GSIIs will be introduced over a long timeframe, with the additional capital requirements on non-traditional business not likely to come into force until 2019. This adds to the uncertainty about the final impact as it gives insurers time to either lobby for further changes or to restructure or sell businesses in order to be removed from the list or limit the additional capital requirements.
We believe that the relatively low number of firms that have been included means insurers are more likely to try and get themselves removed from the list as they are more likely to see it as a competitive disadvantage. The list of GSIIs will be updated each year in November, starting from 2014. However, insurers that aren't included on the GSII list will not necessarily avoid additional capital requirements as many are likely to end up included on individual countries' lists of systemically important firms, which may largely mirror the GSII standards.
The insurers named as GSIIs are:
Allianz SE
American International Group, Inc.
Assicurazioni Generali S.p.A.
Aviva plc
Axa S.A.
MetLife, Inc.
Ping An Insurance (Group) Company of China, Ltd.
Prudential Financial, Inc.
Prudential plc
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