IAIS report on systemic risk and the insurance sector
25 October 2009
The purpose of this paper is to identify challenges which insurance regulators face, by providing further input to the FSB on the issues of systemic risk and the insurance sector.
For traditional insurers, the time horizon is a key dimension of potential systemic risk.
Recent experience has demonstrated unequivocally that non-regulated entities are a key issue of concern. As insurance has a distinct business model, there is likely to be different solutions for insurers.
The working definition of IMF/FSB/BIS could usefully be complemented with a timing related fourth sub element (in addition to size, lack of substitutability and interconnectedness), thus capturing all forms of systemic insurance risk and allowing for the fact that systemic insurance risk does not typically generate immediate shock effects, but plays out over a longer time horizon.
To achieve desired macroprudential outcomes, the IAIS believes that it is necessary for insurers to be supervised on a group wide basis, which includes non-regulated entities and/or non-operating holding companies within a group.
The IAIS also notes that the distinct business model of insurance means that the policy solutions for systemically risky activities will likely differ between sectors. We look forward to working with the BIS, FSB and IMF in developing the framework of appropriate policy responses that is also applicable to insurers.
© International Association of Insurance Supervisors
