Which domestic insurance companies have been identified as systemically important for financial stability of the economy in FY2023-24?

Domestically, systemically important insurance companies are those considered too important to fail. As a result there is an expectation that the government will support these insurers in the event of any financial crisis. Who are these 'too important to fail' insurance companies in India?

The list for financial year 2023-24 includes three companies – LIC, GIC and New India Assurance – all 3 PSUs.

Life Insurance Corporation of India, General Insurance Corporation of India and New India Assurance Company Limited to be recognized as Domestic Systemically Important Insurers (D-SLLS) for FY 2023-24, according to a press release from IRDAI on March 27, 2024 will continue. , This list is the same as 2022-23.

Domestic systemically important insurers (D-SLLS) refer to insurers with such size, market importance, and domestic and global interconnectedness, whose distress or failure would cause significant disruption in the domestic financial system. Therefore, continued functioning of D-SLLS is critical for uninterrupted availability of insurance services in the national economy.

D-SLLS are considered insurers that are 'too big or too important to fail' (TBTF), the release said. According to the release, this perception and expected expectation of government support could increase risk taking, reduce market discipline, create competitive distortions and increase the likelihood of future crises. These considerations require that D-SLS be subject to additional regulatory measures to address systemic risks and moral hazard issues.

The release further said: Given the nature of their operations and the systemic importance of D-SLS, these insurers will need to step up their efforts on the following:
(i) Increase the level of corporate governance;
(ii) Identify all relevant risks and promote a strong risk management framework and culture. As a result, D-SII is being subject to enhanced regulatory supervision, the release said.

It is noteworthy that State Bank of India, ICICI Bank and HDFC Bank have been classified as domestic systemically important banks.

The Reserve Bank had issued the Framework for Dealing with Domestic Systemically Important Banks (D-SIBs) on July 22, 2014. The D-SIB framework requires the Reserve Bank to disclose the name and location of banks designated as D-SIBs starting in 2015. These banks have been placed in appropriate buckets based on their Systemic Importance Score (SIS). Depending on the bucket in which the D-SIB is placed, an additional common equity requirement is to be imposed.