The Financial Stability Board (FSB) was established by the Group of Twenty (G-20) finance ministers and central bank governors in 2009 as the successor to the Financial Stability Forum. It was established to coordinate the work of national financial authorities and international standardization bodies to develop and promote the implementation of effective regulatory, supervisory and other policies in the financial sector in the interests of financial stability. The FSB brings together national financial stability authorities in 24 countries and jurisdictions, international financial institutions, industry-specific international groups of regulators and supervisors, and committees of central bank experts. The FSB advocates a major program of financial regulatory reforms to address the problems of the financial system in order to create uniform rules and a level playing field for all countries. The purpose of the FSB is to provide guidance and explore ways to deal with globally systemically important financial institutions to prevent financial crises.
Insurance is a contractual relationship that arises when one party (the insurer), for a fee (premium), agrees to compensate the other party (the insured) for losses caused to a certain subject (risk) caused by certain unforeseen circumstances (hazards or dangers). The term ‘guarantee’, commonly used in England, is considered synonymous with ‘insurance’.
The 10/10 Rule is a matter of analyzing and demonstrating the transfer of risk as a precondition for the use of reinsurance accounting, which was codified in the early 1990s with the adoption of Financial Accounting Standard (FAS) 113 (and its statutory counterpart, SSAP 62). FAS 113 itself was a response to alleged abuses and set the standard for testing whether something should be called an insurance contract. FAS 113 required that the transfer of risk be demonstrated by comparing the present value of the cash flows associated with the contract and, in particular, by exceeding certain thresholds of “significance” of risk. The thresholds, often referred to as the 9a and 9b tests, are: 9a. The reinsurer assumes significant insurance risk under the reinsured parts of the underlying insurance contracts. 9b. It is possible that the reinsurer could suffer a significant loss from the transaction. While neither “significant” nor “reasonably possible” was defined in this context, standard rules of thumb quickly emerged in the implementation of FAS 113. The most commonly cited is the “10/10 Rule”. This rule states that a contract reaches a threshold if there is at least a 10 percent chance that it will suffer a loss of 10 percent or more in present value (expressed as a percentage of the contract premium ceded).