OTTAWA, March 27 2009 – The Canadian Life and Health Insurance Association (CLHIA) and six other international insurance associations, which together represent the vast majority of the global insurance business, presented a unified statement yesterday to the G20 leaders in advance of their April 2nd Summit in London.
“This initiative, undertaken by leading insurance associations, reflects our joint commitment to encourage G20 leaders to continue down the path of risk- and principles based regulation while strengthening regulatory cooperation around the world,” said Frank Swedlove President of the CLHIA.
The stated goals of the G20 Summit are to take necessary actions to stabilize global financial markets, reform and strengthen the global financial and economic system, and chart a new course towards sustainable economic growth.
In the statement, the insurance industry lays out principles for the G20 leaders to consider. These include gearing prudential regulation to reflect an insurer’s level of risk and diversification; addressing accounting issues to improve the applicability of fair value accounting; and equipping regulators to supervise a globalized insurance industry and guard against systemic risks. Furthermore, in light of an increase in instances of trade protectionism, it is crucial that G20 leaders renew and expand upon their commitment to a standstill on trade and investment barriers made at last November’s G20 Summit in Washington, D.C.
With respect to the Canadian insurance industry, the sector as a whole is strong and continues to be well capitalized. “Canadians can be assured that companies are well positioned to meet any obligations to their policyholders,” Frank Swedlove noted.
Canadian life and health insurers are an international success story, with over half of the industry’s premium income generated from outside Canada while a majority of its employees reside in Canada. With assets of almost $900 billion under management in Canada and abroad, the industry has a substantial stake as well as a strong interest in decisions affecting the global financial services industry.
Established in 1894, the CLHIA is a voluntary association whose member companies account for 99 per cent of Canada’s life and health insurance business. The industry provides a wide range of financial security products such as life insurance, annuities (including RRSPs, RRIFs and pensions) and supplementary health insurance to about 24 million Canadians. It also holds more than $400 billion of assets in Canada and employs over 120,000 Canadians. www.clhia.ca.
See below for the international insurance associations’ letter to G20 leaders.
March 25, 2009
Dear Prime Minister Brown:
As representatives of the global insurance industry, we would like to take this opportunity to pledge our support to you, as Chair of the G20 Summit, as well as to the rest of the G20 leaders in advance of your meeting in London on April 2nd. Together, we represent the vast majority of the global life and health and property and casualty insurance industry.
Insurance has a fundamentally different business model from banking. While not immune to the financial crisis, with very few exceptions, the insurance industry entered this crisis from a position of relative strength. It is therefore important that solutions devised to solve problems in the banking industry are not automatically applied to insurance.
In that light, we would like to express to you our willingness to work with governments, regulators, and agencies to improve upon the regulatory capacities governing the financial services industry both in and between countries. As the issue of financial services regulation will form an integral part of your discussions during the Summit, we highlight, for your consideration, some principles to form the basis for improving regulations in the financial services sector.
First, we believe the global financial crisis has made clear the need for regulators to converge on a risk-based approach to their supervisory activities. Just as central banks around the world adjust interest rates depending upon the degree of risks facing an economy, so should regulators employ a dynamic system for governing financial services providers. Last October, the industry came together to express the view to the International Association of Insurance Supervisors (IAIS) that it is essential that the trend towards an economic-, risk- and principles-based system of regulation continue.
Secondly, recent events have raised awareness of the hazards of not properly monitoring international groups and the systemic risks associated with them. The inconsistency of having a globalized insurance industry on the one hand and a ‘siloed’ national approach to regulation on the other must be reconciled. Insurers have structured their businesses to meet global business needs. Fragmented regulatory structures around the globe need to be overhauled to prevent regulatory protectionism, just as regulatory bodies need to co-operate, and regulatory practices need to converge. For these reasons, we fully support the focus of the G20, the Financial Stability Forum (FSF), and the IAIS on the need to better monitor global systemic risks. The IAIS is the insurance industry’s established international standard setter and as such we believe it should be, to the greatest extent possible, the mechanism through which group-wide solvency standards are developed and implemented (in particular for systemically important groups).
We are encouraged by the IAIS’s recent response to November’s G20 Action Plan and to recommendations flowing from the four working groups set up in the FSF. Most notably, we support the IAIS in its stated commitment to begin monitoring the activities of multinational insurers and to share and promote its expertise and standards with other jurisdictions. It is our hope that further discussions on this issue are transparent and that, as the regulated industry, we have the opportunity to work collaboratively with you in arriving at outcomes.
We would also ask that the FSF incorporate private savings for retirement into its activities. The International Organization of Pension Supervisors (IOPS), the international body representing the supervisors of occupational private pension arrangements to international organizations, is ideally suited to complement the role of the IAIS within the FSF.
We support the combined work of the IASB and the FASB on the Financial Crisis Advisory Group. While the IASB and the FASB have been responsive to some of the needed accounting changes through emergency actions taken over the past six months, there continue to be significant accounting issues that, we believe, need to be addressed to further improve the application of fair value accounting.
Finally, we also believe that, at a time when countries around the world are considering changes to existing regulations or implementing new regulations in response to the global financial crisis, immediate steps should be taken to stop the spread of trade protectionism. As WTO Director-General Pascal Lamy has indicated, the standstill on protectionist measures agreed to by the leaders of the G20 and APEC has been breached in both letter and spirit since those commitments were made late last year. We invite G20 leaders to renew and extend their commitment to a standstill on trade and investment barriers. We would also ask, as suggested through the November G20 meeting, that there be a mechanism, like the WTO, through which countries’ commitment to the standstill measure could be monitored and discussed.
In addition, the 2005 guidelines on corporate governance of state-owned enterprises (SOEs) being discussed within the OECD Investment Committee should be expanded to include G20 countries and their terms of reference should be developed expeditiously. Taking swift action on this will avert any misinterpretation that a given intervention could create a competitive advantage for a particular entity.
The undersigned associations believe a greater focus on economic risk-based regulation both from the standpoint of individual jurisdictions and on a global systemic basis should be a key public policy objective insofar as it could help to mitigate the impact of a similar financial crisis in the future while also providing additional protection to policyholders and beneficiaries. We urge leaders to consider that regulation and prudential requirements for the insurance sector should be closely attuned to levels of risk and diversification, and provide strong incentives for sound risk management. At the same time they should also encourage healthy competition, they should not be a barrier to international trade and investment, and they should be generally supportive of the crucial role insurance companies play in making stable long-term investments in economies around the globe.
Association of British Insurers (ABI)
Association of Bermuda Insurers and Reinsurers (ABIR)
American Council of Life Insurers (ACLI)
Canadian Life and Health Insurance Association (CLHIA)
Dublin International Insurance & Management Association (DIMA)
The European Insurance and Reinsurance Federation (CEA)
Insurance Bureau of Canada (IBC)