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One example is the counterparty default risk which is considered by the International Association of Insurance Supervisors (IAIS) as a transmission channel of vulnerabilities to the financial system. This risk is in fact already reflected in the capital requirements under Solvency II and in many other jurisdictions’ micro-prudential framework and should not be in the scope of macro-prudential regulation.
Insurance Europe also highlighted the importance of the consideration of derivatives as a valuable risk-mitigation tool in the non-traditional, non-insurance (NTNI) identification process. The IAIS approach is to consider risk exposures and vulnerabilities by disregarding the existence of derivatives as a risk hedging tool. By taking this stance the IAIS ignores the intentions and achievements of the G-20 derivatives reform initiated in 2009 and aimed at precisely addressing systemic risk in the derivatives market.
The identification of NTNI activities and products is important for the macro-prudential supervisory measures developed by the IAIS and the Financial Stability Board. The concept is used in the designation of global systemically important insurers (G-SIIs) and the calculation of potential capital add-ons (ie higher loss absorbency requirements).