Colm Kelleher, Chairman of UBS, warned that insurers’ practices of looking for higher rankings for their very own credit score belongings pose “imminent systemic dangers” to the worldwide monetary system.
Talking on the Hong Kong Financial Authority’s World Monetary Leaders Funding Summit on Tuesday, Kelleher likened the present scenario to what banks did earlier than the worldwide monetary disaster in 2008.
He mentioned that insurance coverage firms, particularly in the US, observe what he described as “rankings arbitrage,” much like what banks and different establishments did with subprime loans earlier than the monetary disaster.
He added that an growing variety of small score companies are granting funding rankings to fulfill compliance necessities, warning that the absence of efficient oversight of this sector exacerbates the dangers.
The Financial institution for Worldwide Settlements indicated final month that rankings of personal credit score belongings held by US insurance coverage firms could also be overstated, warning of the opportunity of “compelled gross sales” in durations of monetary stress.
“In 2007, the mortgage disaster was all about company rankings arbitrage, and right this moment we see the identical factor occurring within the insurance coverage sector,” Kelleher continued.
