February 17, 2011 / 6:38 PM / 9 years ago

Insurers aim to shake off G20 systemic risk label

* Insurance poses no threat to financial system -body

* Move to put insurers on ‘SIFI’ list hurts business

* Some derivatives, funding mismanagement may pose risk

FRANKFURT, Feb 17 (Reuters) - Global insurers have urged Group of 20 financial leaders to omit them from a list of big financial players being singled out for extra scrutiny by regulatory watchdogs.

The Geneva Association, which represents nearly 90 chief executives of top insurance and reinsurance companies, published an open letter to the finance ministers and central bank governors of the Group of 20 developed and emerging market nations, saying on Thursday insurers had no place on the list.

Regulators have been working to develop a list of systemically important financial institutions (SIFIs) that could threaten the financial system should they collapse, drawing a lesson from the failure of investment bank Lehman Brothers and the $182 billion bailout of U.S. insurer AIG (AIG.N).

The association “remains very concerned about the political decision taken to develop a list of insurance SIFIs,” its president, Munich Re (MUVGn.DE) chief executive Nikolaus von Bomhard, said in the letter.

Bib banks and insurers worry that a place on the list might not only subject them to more intense scrutiny from regulators but also that they may have to stump up extra cash to fund future bailouts.

Insurers like Allianz (ALVG.DE), Axa (AXAF.PA) and Generali (GASI.MI) have said normal insurance business carries no systemic risk.

The G20 should focus on dangerous activities rather than on the size of a company, the Geneva Association said.

“Incorrectly identifying a potentially systemically risky activity or falsely including an insurer on a SIFI list would have detrimental consequences for the institution’s business and the insurance industry,” the association said.

The group said it had identified two areas not central to insurance business but which could prove systemically risky.

The first included speculation of the type that felled AIG, where derivatives are written in non-insurance legal entities, or, alternatively, where “monoline” insurance companies provide financial guarantees and are connected to the financial system through the credit rating of securities, such as bonds.

A second area was mismanagement of short-term funding, such as funding risky illiquid assets through short-term debt.

The association said a focus on these activities, rather than individual companies, would be more efficient for supervision and would cut chances of regulatory arbitrage. (Reporting by Jonathan Gould; Editing by Dan Lalor)

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