Basel II and Insurance Companies
- Thread starter yjhirad
- Start date
Hi jy,
I am frankly not current on this aspect (insurance) of Basel II. I think (but am not sure) that insurance subs are generally excluded ... where I am unsure is (i) basel seems to give regulators discretion here, so countries may vary and (ii) i would imagine that some kinds of "minority investments" (e.g.) still qualify into the framework as exposures, or at least, it would not surprise me ... so i am not sure where the line is drawn...I assume you are aware of solvency II: http://en.wikipedia.org/wiki/Solvency_II
Here is from the Basel II text:
From Basel II text (emphasis mine):
24. To the greatest extent possible, all banking and other relevant financial activities (“Financial activities” do not include insurance activities and “financial entities” do not include insurance entities.) (both regulated and unregulated) conducted within a group containing an internationally active bank will be captured through consolidation. Thus, majority-owned or -controlled banking entities, securities entities (where subject to broadly similar regulation or where securities activities are deemed banking activities) and other financial entities should generally be fully consolidated.
30. A bank that owns an insurance subsidiary bears the full entrepreneurial risks of the subsidiary and should recognise on a group-wide basis the risks included in the whole group. When measuring regulatory capital for banks, the Committee believes that at this stage it is, in principle, appropriate to deduct banks’ equity and other regulatory capital investments in insurance subsidiaries and also significant minority investments in insurance entities. Under this approach the bank would remove from its balance sheet assets and liabilities, as well as third party capital investments in an insurance subsidiary. Alternative approaches that can be applied should, in any case, include a group-wide perspective for determining capital adequacy and avoid double counting of capital.
David
I am frankly not current on this aspect (insurance) of Basel II. I think (but am not sure) that insurance subs are generally excluded ... where I am unsure is (i) basel seems to give regulators discretion here, so countries may vary and (ii) i would imagine that some kinds of "minority investments" (e.g.) still qualify into the framework as exposures, or at least, it would not surprise me ... so i am not sure where the line is drawn...I assume you are aware of solvency II: http://en.wikipedia.org/wiki/Solvency_II
Here is from the Basel II text:
From Basel II text (emphasis mine):
24. To the greatest extent possible, all banking and other relevant financial activities (“Financial activities” do not include insurance activities and “financial entities” do not include insurance entities.) (both regulated and unregulated) conducted within a group containing an internationally active bank will be captured through consolidation. Thus, majority-owned or -controlled banking entities, securities entities (where subject to broadly similar regulation or where securities activities are deemed banking activities) and other financial entities should generally be fully consolidated.
30. A bank that owns an insurance subsidiary bears the full entrepreneurial risks of the subsidiary and should recognise on a group-wide basis the risks included in the whole group. When measuring regulatory capital for banks, the Committee believes that at this stage it is, in principle, appropriate to deduct banks’ equity and other regulatory capital investments in insurance subsidiaries and also significant minority investments in insurance entities. Under this approach the bank would remove from its balance sheet assets and liabilities, as well as third party capital investments in an insurance subsidiary. Alternative approaches that can be applied should, in any case, include a group-wide perspective for determining capital adequacy and avoid double counting of capital.
David
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