The parent companies of four property and casualty insurers with operations in Canada have cracked the G-20’s list of insurers “too big to fail.”
Aviva plc, the parent company of Canada’s second-largest insurer, made the list. Also, Axa SA, Allianz SE and American International Group (AIG) have all been designated by the international Financial Stability Board (FSB) as “global systemically important insurers.”
The FSB defines these parent insurance companies as “institutions of such size, market importance, and global interconnectedness that their distress or failure would cause significant dislocation in the global financial system and adverse economic consequences across a range of countries.”
Effective in 2019, the International Association of Insurance Supervisors will be requiring nine designated global insurance companies – including the four noted above – to increase their capital if they are involved in non-traditional insurance or non-insurance related activities.
Non-traditional and non-insurance activities involve financial features such as leverage, liquidity or maturity transformation, imperfect transfer of credit risks (i.e. “shadow banking”), credit guarantees or minimum financial guarantees. “They also often involve products that are more financially complex than traditional insurance products in the shifting of financial market risk to insurers,” the IAIS said.
Other products of concern include those where the liabilities are significantly correlated with financial market outcomes, such as stock prices, and the economic business cycle.
The parent companies’ ownership of Canadian operations has shifted somewhat throughout the years because of acquisitions and other global market dynamics.
• Aviva Canada, which distributes through the broker distribution channel, is Canada’s second-largest insurance company with more than $3.3 billion in gross written premiums. The company has more than 3,000 employees, 25 locations and 1,700 independent broker partners in Canada.
• Axa Canada, which had 1,300 brokers in Canada, was acquired for $2.6 billion in 2011 by Intact Insurance, Canada’s largest insurance company. Intact, a multi-channel insurer, now has more than 3,000 broker partners across the country as a result of the Axa Canada acquisition and writes $6.5 billion in direct premium.
• Allianz Canada’s property and casualty insurance operations were bought in 2004 by ING Canada, the previous owner of Intact Insurance (ING Canada sold its ownership to Intact in 2009). About 800 brokers shifted from Allianz Canada to ING Canada as part of the deal, although Allianz retained its Canadian industrial lines business, which is part of Allianz Global Risks (AGR).
• AIG Canada has recently re-branded itself, after going by the name of Chartis Insurance for three years. The name change to Chartis in 2009 was an upshot of the parent company, American International Group (AIG), enacting a series of measures to pay back an $86-billion U.S. government loan, which helped AIG to stave off bankruptcy. AIG has since paid off the loan.
The reliance on risky credit derivatives by AIG’s parent company in the United States is commonly cited as one of the main triggers of the global financial crisis in 2008. Since then, regulators have been looking to identify large financial institutions for their potential to upset the balance of the global financial system.
The five other global systemically important insurers are: Assicurazioni Generali S.p.A., MetLife Inc., Ping An Insurance (Group) Company of China Ltd., Prudential Financial Inc. and Prudential plc.