International Association of Insurance Supervisors, 2013, “Global Systemically Important Insurers: Initial Assessment Methodology,” July.
International Monetary Fund, 2011 “Chile–Financial Sector Stability Assessment,” IMF Country Report No. 11/261, August (Washington: International Monetary Fund).
Prepared by Nicolas Arregui (MCM).
While banks or insurance companies are not permitted to directly own another insurance company, conglomeration can be established between financial companies through a holding company. While life and non-life companies need to be individually licensed and a separate corporation established, if they belong to the same group, the same management and administrative system may be used in Chile.
In their guidelines, markets with a Herfindahl Index (HHI) below 1000 are deemed “unconcentrated,” those with an HHI between 1,000 and 1,800 are deemed “moderately concentrated,” and those with an HHI above 1,800 are deemed “highly concentrated.”
Examples of non-traditional and non-insurance activities include financial guarantee insurance, capital market activities such as credit default swap (CDS) issuance, transactions for non-hedging purposes, derivative trading or leveraging assets to enhance investment returns.
Mutual funds are a key investment for property and casualty insurers.
Regulatory exposure limits for housing are tighter than those for commercial real estate.
Real estate assets are priced at the minimum of two independent price sources and the amortized cost adjusted by inflation.
Another stress testing exercise conducted by SVS considers a drop in asset prices of 30 percent.
See IMF Chile FSAP Update 2011.
The lack of a global standard for capital adequacy in insurance does not allow for a cross-country comparison.
The 2004 FSAP conducted a review of the insurance sector that, among other issues, recommended a move to a more risk-based approach to supervision. The 2011 FSAP followed up on the recommendation.
At present the capital requirements (based on Solvency I) cannot be said to be sensitive to the size and risks of the insurers’ operations. The SVS is in the process of developing a standard formula for risk-based capital. To date, the SVS has published two methodological papers and is conducting its second quantitative impact study.