Roadmap for world insurer solvency rules expected
BASEL, Switzerland - The world's insurance regulators plan to issue a roadmap later this year for the completion of a common structure and common standards for assessing insurer solvency, the International Association of Insurance Supervisors (IAIS) said in February.
The Basel-based IAIS, which represents insurance supervisors from more than 120 countries, said the roadmap can be produced now that the shape of the structure and standards is becoming clearer.
The Association, which promotes the development of international standards for insurance supervision, issued a consultation paper in February on the `cornerstones' for assessing insurer solvency*. The deadline for comments is April 15.
The paper builds on existing IAIS papers on solvency, in particular the one on a new framework for insurance supervision issued in October.
The latest paper outlines a more precise view on the number of key elements, or cornerstones, for developing regulatory financial requirements for insurers worldwide.
IAIS technical committee chairman Tom Karp says the ideas can be used to enhance transparency and comparability across solvency regimes and thereby create greater international convergence of solvency regimes.
*Towards a common structure and common standards for the assessment of insurance solvency: cornerstones for the formulation of regulatory financial requirements - IAIS (www.iaisweb.org)
Better Brazilian regulation allays bad loan fears SAO PAULO - Improvements in Brazil's regulatory framework means that the banks and the supervisors are better prepared to face the current lending cycle than they were during past cycles, according to Moody's rating agency.
A report on the outlook for the Brazilian banking system, issued by the agency in January, says banks have developed credit-scoring systems and have implemented client-segmentation strategies that have provided better knowledge of risk profiles and pricing in each borrowing segment. Regulators, meanwhile, are capable of closely monitoring the risk exposure of the banking system and of individual banks.
The cycle of interest rate cuts that started in early 2003 has resulted in a 1,100 basis point reduction over a 15-month period. Together with a more benign external environment and continued export expansion, this interest rate reduction has produced a positive combination of rising incomes, high employment and vibrant consumer spending, says the report.
As a result, Brazil's economy is thought to have grown by around 5% last year. Bank credit expanded sharply, by 18% in November 2004, on a 12-month basis. Particularly impressive, says Moody's, has been the growth of consumer credit, which alone rose more than 28% over the same period.
The banks, for their part, have been increasingly attracted to the high margins offered by consumer financing, and also by the ability to gain access to a new borrowing class of low-income earners.
Corporate credit has grown markedly, too, expanding by 19% over the same comparative period, particularly in the export-related sector, and agribusiness. And this increasing consumer and corporate confidence, along with growing income and credit volume, point to a continuing economic upswing "that could maintain its momentum in 2005," suggests the Moody's report.
But, importantly, the credit expansion has so far not translated into credit quality problems for the system, the agency reckons. The rate of loan delinquencies has been on a slightly declining trend for the last 14 months -- "an indication of improved income levels, as well as the banks' overall improved credit origination and monitoring processes." According to the central bank, the system's average band loan ratio was 5.7% at mid-2004 (measured as loans with any installment more than 15 days past-due). Another positive recent development is the recent approval of the long-awaited bankruptcy law, which has cleared the path to a more efficient resolution of corporate failures and restructurings, the report says. It also notes that the Brazilian banking system's ratio of capital to risk-weighted-as assets was a substantial 18.5%, on average, at mid-2004 - comfortably above the regulatory minimum requirement of 11%. Therefore "capital adequacy is not a concern, overall." This comfortable capital level is largely explained by the banking system's historically high exposure to government securities, which have a zero risk weighting under international capital calculation rules laid out in the Basel accord.
Moody's says all the banks are likely to adopt the simplest approach (Standardised approach) to credit risk measurement under the new Basel capital accord when it is introduced in Brazil by 2011. However, the larger banks may opt to adopt the more advanced approach after a transition period.
It is the continuing potential conflicts of interest facing the public sector that remains a nagging concern for Moody's. The Brazilian banking system is characterised by the dominant franchises of large universal public and private banks. The top ten banks account for nearly 80% of total bank assets. A substantial portion of this market share is in the hands of two publicly owned banks, Banco do Brasil and Caixa Economica Federal - the largest and fourth biggest respectively.
Despite the substantial improvements in many of their financial indicators, resulting from strategic repositioning, as well as much enhanced governance, "public banks are still shadowed by potential conflicts between their public roles and commercial mission," says the report.
