HLA could incentivise systemic activity - Swiss Re
Head of governmental affairs says crude measures might have unintended consequences
A flaw in the formulation of higher capital charges for global systemically important insurers (G-Siis) could incentivise firms to increase rather than reduce systemic activity, according to Lutz Wilhelmy, head of governmental affairs at Swiss Re.
By linking the calibration of the higher loss absorbency (HLA) capital requirement to the riskiness of G-Siis compared with each other, the measure makes it rational for firms collectively to increase non-traditional, non-insurance activity, he says.
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