Insurers are smaller than banks and are less tied to the global economy, are less active than the financial sector less CDS subscribe, use much less short-term funding, and are much less interconnected to other financial service providers that banks, according to the study published yesterday by the Geneva Association, addressed to convince regulators to exempt the sector hard and new capital requirements imposed on the banking industry. This is a cross-sectoral analysis which compares the so-called 28 major global banks systemic (G-SIBs, its acronym in English) versus 28 of the world's largest insurers in systemic risk indicators.

John H. Fitzpatrick, secretary general of the Geneva Association, said: "This research represents the first empirical and quantitative comparison of insurers and banks using comparable criteria required by the International Association of Insurance Supervisors (IAIS). The purpose of this analysis is to provide policymakers and other stakeholders an analysis of the facts that quantify the systemic risk of banks insurance against these criteria to support their decision making. "

"We believe this research will provide useful information to regulators and supervisors when considering the designation of systemically important insurers. What is clear is that insurers' participation in these activities systemic risk is significantly lower than the 28 G -SIBs. Moreover, insurers generally match assets with liabilities and therefore are less likely than banks to systemic risk caused by borrowing short to lend long, "Fitzpatrick said.

BANKS VS INSURERS: DIFFERENCES IN SYSTEMIC RISK INDICATORS

Specifically, the average bank's assets are 3.9 times larger than the industry average and the largest insurance underwriter would be located just next to the twenty-second largest bank systemically important. Moreover, as insurance liabilities are substantially comparable assets, a balance has much less risk sure systemically than a comparable sized bank.

Another conclusion of the analysis points to the tendency of insurers to underwrite CDS is considerably lower than that of banks. On average, banks have subscribed 158 times the gross national credit default derivatives (credit default swaps, CDS, its acronym in English) that the average insurance industry. This means that the financial sector has sold many times protection through CDS as securities that protect investors of debt default, which has magnified the potential consequences if they go bankrupt, the association said. Even banks of the bottom of the table have an average 12.5 times the average CDS sold by insurance companies.

Insurers use much less short-term funding to banks. The short-term funding as a percentage of total bank assets is 6.5 times the short-term funding as a percentage of the assets of the insurer. In this sense, the Geneva Association recalls that maturity transformation (ie borrowing short to lend long) is fundamental to the business model of many banks and is a major source of systemic risk.

Furthermore, the analysis also highlights that insurers are much less interconnected to other financial service providers that banks, which have 219 times more than the average gross exposure of the insurance industry. Therefore, if the events were developed in the derivatives markets, is more likely to have a greater impact on banks than insurers.

For Daniel Haefeli, Head of Insurance and Finance Program at the Association of Genoa, "the process of appointing global insurers greater systemic importance should reflect the events described in this report and the specifics of the insurance industry and its model business. If the designation process is well managed and is not appropriate, the resulting policy measures could reduce the amount of insurance coverage available in the market and this could negatively affect the overall growth potential at a time when the world can least afford. "