The Geneva Association,* the most prominent global “think tank” for the insurance industry, has taken issue with the proposals from the International Monetary Fund to impose a “financial stability tax,” which would be levied on financial services companies, including insurers.
In an open letter, addressed to “the Finance Ministers and the Central Bank Governors of the G-20,” the Association points out that the IMF’s proposal “fails to adequately address the distinct nature of the insurance industry and its stabilizing role in the economy.”
The letter adds: “The application of such proposal even seems contradictory, given that the insurance industry did not cause the crisis in the first place and was instead a victim of the consequences, through asset devaluation, recessionary development of the economy and a very low interest environment.”
It goes on to detail the differences in the insurance industry’s business model – premium payments for protection from loss events – as opposed to banks – short term liquid deposit demands “related to lending activities and liquidity risks due to the mismatch from borrowing short and lending long.”
As the Association pointed out in a published report in February [See IJ web site – https://www.insurancejournal.com/news/international/2010/02/26/107718.htm], “our research shows that core insurance activities do not create systemic risks.”
The report took pains to point out that the problems some insurers had, notably AIG, did not stem from their core insurance business, but from non-related activities carried out “without due risk management or effective supervisory oversight.”
The letter, signed by Dr. Nikolaus von Bomhard, President of the Geneva Association and the Chairman of Munich Re’s Board of Management, and Patrick M. Liedtke, the Association’s secretary general and managing director, urged caution before imposing additional financial burdens on the insurance industry and ultimately on its customers.
“At this time of crucial economic decisions, what is needed is proportionate and appropriate solutions that strengthen the financial system and enable governments to address the challenges of the future. It is important that the different roles and risks faced by financial institutions in the system are clearly identified and addressed in a focused way accordingly. This needs to be recognized in the discussions on any potential solution proposed to protect the system,” the letter concluded.
For a more complete discussion of the differences between banks and insurers, and their respective roles in the economic crisis go to the Association’s web site at: www.genevaassociation.org.
Source: Geneva Association.
*The full name of the organization is the “International Association for the Study of Insurance Economics.”
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