How should insurers’ foreign branches be supervised?

Abstract

In this era of globalisation, a number of insurers are operating on a worldwide basis. Globalisation brings new challenges to supervisors, as was observed during the financial crisis of 2007–2008, as well as a number of benefits. Insurers operate on a cross-border basis either by establishing subsidiaries or branches in other countries or offering insurance products without having physical offices outside their home country. Focusing on operations in the form of branches, this paper considers how foreign branches of insurers need to be regulated and supervised, and introduces a paper regarding the supervision of foreign branches, published by the International Association of Insurance Supervisors (IAIS) in October 2013. Foreign branches are regulated and supervised much like domestic insurers, including subsidiaries of foreign insurers. Nevertheless, some supervisors experience difficulties in supervising foreign branches. Branches are not a legal entity and therefore there is no board of directors at branch level. Additionally, a branch's assets backing insurance liabilities can be readily transferred to other countries. Considering such uniqueness of foreign branches, this paper also proposes some possible approaches to their supervision.