D-SIIs attract enhanced regulatory supervision
MUMBAI/September 25: The insurance regulator IRDAI has identified Life Insurance Corporation (LIC) of India, General Insurance Corporation (GIC) of India and The New India Assurance Co Ltd as Domestic systemically important insurers (D-SIIs) for 2020-21.
This means that these insurers, being D-SIIs, will be subject to enhanced regulatory supervision. “The three D-SIIs have also been asked to raise the level of corporate governance, identify all relevant risks and promote a sound risk management culture,” the IRDAI) said in a statement.
Domestic Systemically Important Insurers (D-SIIs) refer to insurers of such size, market importance and domestic and global inter connectedness whose distress or failure would cause a significant dislocation in the domestic financial system. Therefore, the continued functioning of D-SIIs is critical for the uninterrupted availability of insurance services to the national economy.
Too Big To Fail
D-SIIs are perceived as insurers that are ‘too big or too important to fail’ (TBTF). This perception and the perceived expectation of government support may amplify risk taking, reduce market discipline, create competitive distortions, and increase the possibility of distress in future.
These considerations require that D-SIIs should be subjected to additional regulatory measures to deal with the systemic risks and moral hazard issues.
In order to identify such insurers and to put such insurers to enhanced monitoring mechanism, the regulator has developed a methodology for identification and supervision of D-SIIs.
The parameters, as per the methodology for identification of D-SIIs, inter alia include the size of operations in terms of total revenue, including premium underwritten and the value of assets under management; global activities across more than one jurisdiction; lack of substitutability of their products and/or operations; and interconnectedness through counterparty exposure and macro-economic exposure.
