In connection with finalizing its “key attributes” for systemic resolution, the Financial Stability Board has released protocols to resolve systemic insurance companies. Although global regulators assume that run-off and policy transfers will generally handle insolvency, they have concluded that complex insurers and reinsurers engaged directly or through holding companies, non-regulated operational entities, and foreign branches in activities akin to banking require a separate resolution regime. The one now finalized is intended to intersect with traditional policy-holder guarantee schemes, but could permit the systemic one to override these in ways that could pose risk to traditional policy-holder protection. Policy-holders outside the scope of existing protections would be at even more risk of loss of coverage during a resolution, as would other counterparties if insurance regulators are able to implement stays, loss-absorption, and related bail-in provisions. To the extent these policy-holders and counterparties anticipate new risks in dealing with G-SIIs, market reconfiguration may occur, especially if stress increases in insurance risk (including national disasters) or broader instability.
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