“D-SIIs are perceived as insurers that are too big or too important to fail. 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,” the regulator further said. Hence, there is a need to subject D-SIIs to enhanced regulatory supervision.
A senior GIC Re
official said, it’s good for us and we are pleased with the regulator’s decision but with greater recognition comes greater responsibility.” “Irdai
will come out with further instructions on this subject. Once it comes out with the instructions, all the entities have to comply with them,” said a senior insurance executive aware of the matter.
Ashvin Parekh, managing partner, Ashvin Parekh Advisory, said, “Now, the regulator will require closer supervision on account of the disruption it may cause, should any systemic risk arise to any of these entities. This principle, in some form or the other, has been emulated from the banking system and flows originally from the Basel thinking. For any financial institution, which has a significant size, the regulator would expect a higher order of supervision and reporting.”
The regulator has developed a mechanism for identification and supervision of D-SIIs. The parameters include 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. “These parameters were assigned weights to cover various aspects of their operations,” said the regulator.
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