NU Online News Service, Oct. 25, 3:05 p.m.EDT

Property and casualty and life and health insurance companiesworldwide are asking the Group of Twenty to differentiate theirindustries from banks in crafting measures designed to addresssystemic risk.

Trade groups representing both domestic and foreign insurers andreinsurers asked for the different treatment in a letter sent inadvance of the G-20 meeting scheduled for Nov. 11 and 12 in Seoul,South Korea.

The meeting of finance ministers and central bank governors willaddress ways the largest nations can join in drafting regulationsdesigned to strengthen and better coordinate regulation of theglobal financial system.

The letter, sent to the U.S. Treasury, contends that insurancecompanies have a different risk profile than banks, and subjectingthem to additional capital and reporting requirements in order toprevent systemic risk could well "have the opposite effect byincreasing the risk of moral hazard and causing marketdistortions."

Moreover, the letter said, "the identification of individualinsurers as being systemically important financial institutions(SIFIs) and subjecting them to additional capital and reportingrequirements would miss the ultimate goal of achieving greaterfinancial stability."

The letter said that insurers fared "relatively well" in thefinancial crisis in comparison to other financial servicessectors.

"This is evidence that the insurance regulatory framework, whichis aimed at an adequate level of policyholder protection, workswell in most jurisdictions," the letter explained.

Moreover, a risk-based and principles-based approach toregulation and supervision allows regulators to choose from a rangeof measures other than simply resorting to higher capitalrequirements, the letter continued.

Signatories to the letter include the Property Casualty InsurersAssociation of America; the Reinsurance Association of America; theAmerican Insurance Association; the American Council of LifeInsurers; the Association of British Insurers; the Association ofBermuda Insurers and Reinsurers; the Brazilian InsuranceConfederation; the Canadian Life and Health Insurance Association;the Dutch Association of Insurers; the European Insurance andReinsurance Federation; the General Insurance Association of Japan;the Insurance Bureau of Canada; the Insurance Council of Australia;and the Life Insurance Association of Japan.

Besides capital requirements, the letter suggested other systemswhere insurers differentiate themselves from banks.

For example, the letter asks that proposals to strengthenresolution frameworks should not be applied to the financial sectoras a whole without giving due consideration to the insurancebusiness model and the orderly wind-up procedures that alreadyexist in insurance regulation.

The letter also says it is unnecessary to levy fees aimed atpaying for a future resolution of a troubled insurer. No suchadvance levy is necessary, the letter states, because it is lesslikely that insurers compared to banks will be the recipients ofany future government interventions.

This concern is aimed at international proposals for a financialtransaction or financial activity tax that would be used to recoverthe costs of the direct and indirect public intervention in thebanking sector due to past or future financial crises.