Gordhan seeks fair economic system
March 9, 2010
By Bruce Cameron
The worst of the global recession might be over, but the world economic structure still had to be properly and fairly restructured, Finance Minister Pravin Gordhan said at the opening of the International Actuaries Convention in Cape Town yesterday.
Gordhan told the 1 500 delegates from 100 countries that actuaries should contribute by developing a new values index that would not only see a safer financial system but a more humane system based on fairness and public spiritedness.
It was when personal greed took over from public spiritedness that the public interest was always the loser, the minister said.
Yoshihiro Kawai, the secretary-general of the International Association of Insurance Supervisors and a member of a special Group of 20 committee appointed to properly assess and reduce the potential for another global financial meltdown, said there had to be a major revision of the international regulatory system.
This included the need to have co-ordinated regulation across international boundaries, as well as across financial sectors such as banking, securities and insurance, to reduce systemic risk.
One of the first targets, Kawai told the convention, was international insurance conglomerates that had mainly escaped the attentions of financial regulators.
Kawai said that in the economic meltdown an estimated 25 institutions created 75 percent of the total losses. And of the 35 largest international institutions, 14 were insurance companies or insurance conglomerates, he said.
The meltdown had shown that one institution could create systemic risk for the entire world and that the contagion could spread very quickly.
He said that, because of the globalisation of financial markets and economies, no economy, whether a country or a region, could say that it would escape being affected by a meltdown. Kawai predicted that there would be new meltdowns, only no one knew where and when.
He said previously his organisation had only been concerned with protecting insurance policyholders. Now it was having to look far wider.
For example, the insurance industry had a major role in the pension fund business and pension funds are the largest institutional investors.
Any systemic risk to the broader financial services industry puts the pensions of ordinary people at risk as well as entire economies.
Such an example, Kawai said, was when an insurance company that provided all the construction fidelity insurance in Australia recently went broke, bringing building development to a halt.
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