IAIS position on key financial stability issues in insurance - Insurance does not generate or amplify systemic risk
09 June 2010
The insurance sector is susceptible to systemic risks generated in other parts of the financial sector. For most classes of insurance, however, there is little evidence of insurance either generating or amplifying systemic risk, within the financial system itself or in the real economy, IAIS said.
The following key points are presented in the International Association of Insurance Supervisors (IAIS) position paper:
· The insurance sector is susceptible to systemic risks generated in other parts of the financial sector. For most classes of insurance, however, there is little evidence of insurance either generating or amplifying systemic risk, within the financial system itself or in the real economy.
· There are also some circumstances where insurers may amplify risk, for example life insurers reacting to downturns in equity markets, or where they may disrupt for a period a segment of the real economy through an unexpected withdrawal of capacity. An effective regime of regulation and supervision can mitigate these possibilities.
· Non-regulated entities of financial conglomerates and some specific insurance activities (such as financial guarantee insurance) can generate or amplify systemic risk and may be instrumental to contagion within conglomerates or between sectors.
· Since interdependencies between the sectors may increase in the future through products, markets and conglomerates, the IAIS is promoting enhancements to supervision and supervisory processes, combined with stronger risk management and enhanced approaches to resolvability to minimise adverse externalities. These enhancements include group-wide supervision and the development of a Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame). The IAIS is also promoting cross-sectoral macro-prudential monitoring of potential buildup of systemic risk and planning to develop measures for national authorities to assess degrees of systemic risk.
© IAIS - International Association of Insurance Supervisors
