A leading insurance executive has warned that global regulators’ moves towards increasing capital requirements for insurers will impede the industry’s ability to cover the world’s ever-increasing risks.

XL Group chief executive officer Mike McGavick said that the tendency to paint insurers with the same brush as banks was counter-productive.

Speaking at Bermuda Monetary Authority International Regulatory Forum in Hamilton this week, Mr McGavick said the insurance industry as a whole had come through the global financial crisis extremely well, compared to the banking sector, with AIG the lone exception.

“We can’t ignore that the notion of additional capital requirements for an industry that has just passed the greatest stress test in 70 years is a foolish one,” Mr McGavick told delegates.

And he suggested that the Financial Stability Board (FSB), which last month recommended beefing up insurance regulation in the US, was focused on banking and had little knowledge of the insurance sector.

“If you are a banking regulator, then capital is your first thought,” Mr McGavick said. “Insurance has a different business model. Insurers should be allowed to come and go. Backstop capital is effective in their world, but in our world it creates a problem.”

He said if insurers had to deal with a ‘backstop’ on top of the additional layers of capital requirements at the local regulator and group regulator levels, when already return on equity was only in the high single digits, then its ability to insure the world’s risks would inevitably decline.

He added that he hoped that various groups who represented the insurance industry could join forces and speak with one voice in talks with the FSB.

Moderating the panel was Karel van Hulle, of the International Centre for Insurance Regulation, sometimes described as “the father of Solvency II”, the new rules for insurers imposed by the European Union. The EU finally put Solvency II into effect last week, and delegates gave Mr van Hulle a round of applause in recognition of his achievement.

Fellow panellist Craig Swan, managing director, supervision, at the BMA, said it was important “to purchase shutters before the hurricane, not during it”. With that in mind, the BMA had made great strides forward in enhancing regulation over the past few years in preparation for the next “storm”.

The form that storm could take would be a mega-catastrophe. He pointed out that Hurricanes Ike and Irene could have been much more costly had they not veered in direction and Sandy could also have been much worse, if it had not lost intensity.

“The industry has not yet experienced a one-in-100 or 200-year event in a peak zone,” Mr Swan said. “The industry is well capitalised, but these kind of events will be the storm. That is why we at the BMA have purchased our storm shutters before that storm hits.”

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