In selling the remainder of its shares in December, the US Treasury made a positive return on the $180 billion bail-out they provided AIG. The company’s recovery was one of the success stories of 2012 but its collapse four years earlier because of reckless speculation on complex mortgage products has cast a long shadow over the entire insurance industry. As one of the world’s largest insurers the size of AIG’s failure, along with what caused it, has encouraged international policymakers to lump banking and insurance together as they design a post-crisis regulatory framework. The significantly higher capital charges that this entails is something insurers are lobbying to resist.

The industry-funded think tank The Geneva Association recently concluded that insurance companies today pose a much lower threat to the global financial system than the banks because they are smaller, rely less on short-term funding and have fewer connections to other financial services providers. Their research found that compared to a bank, the average insurer now has a massively reduced exposure to derivatives and in particular credit default swaps; the major source of systemic risk, that scuppered AIG. Few doubt that insurance is intrinsically less dangerous to the world economy than banking yet the fact that the industry is compelled to produce such reports suggests that regulators are sceptical. The International Association of Insurance Supervisors will be reporting in April and if they ignore the Geneva representations and were to follow the example of the banks they may propose a capital surcharge on those insurers it deems as too big to fail.

Size also matters to the UK Parliamentary Commission on Banking Standards, who in a sober report before Christmas fell just short of calling for the break-up of the largest banks but instead demanded that the ring-fence between retail and investment activity, proposed by the Vickers Committee, be “electrified” as part of the banking reform legislation scheduled for later this year. Following the appalling revelations in 2012 of corruption, collusion and market-rigging, it is a popular move for politicians to protect ordinary borrowers from the high-stakes casino style trading that is unfortunately the public perception of city banking.

If our law makers are so intent on defending the bank’s high street customers then conceivably they might also look to similarly safeguard the interests of consumer and business policyholders. Although a ring-fencing of what insurers get up to in the more complex and volatile world of reinsurance might seem unlikely, if the much vaunted convergence of reinsurance with derivatives were to occur then this could prompt regulators to respond. Indeed, prior to the market reforms of the 1990s, reinsurance underwriting was as undisciplined, convoluted and self-serving as many now consider investment banking so the idea might have been a good one back then. These days, however, reinsurance has proved to be a controlled strategy for insurers to diversify risk judiciously and forge partnerships across geography, particularly into the emerging economies of the world. To interfere with that would be a great pity.