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RAPPORT

Systemic risk in the insurance sector

Risk proposals lack clarity

The International Association of Insurance Supervisors’ (IAIS) proposal for a new “holistic framework” for identifying and managing systemic risk in the insurance sector currently lacks sufficient clarity.

Insurance Europe is therefore calling on the IAIS to improve its proposal, most notably by:

  • Stipulating that — before supervisory intervention is required — national supervisors must work with insurers to achieve a mutual understanding of situations that might give rise to systemic risk and discuss alternatives to intervention.
  • Better distinguishing between measures that are reflective of good practice and that should be applied proportionally and more drastic measures (such as resolution) that should only be applied where it can be demonstrated that there are material risks to the global financial system.
  • Defining a well-calibrated threshold to identify systemically risky activities that could — if undertook by several insurers —amplify shocks to the rest of the financial system.

Insurance Europe added that any new policy measures linked to systemic risk must be globally-consistent and applied in a proportionate manner. The holistic framework should also pay particular attention to preserving a level playing field between different insurance groups and jurisdictions.

Moreover, Insurance Europe has always argued that traditional insurance is not systemically risky, and that systemic risk can only originate from a very limited number of activities undertaken on a large scale in the wrong conditions. Therefore, a strong application of the proportionality and materiality principles should guarantee that insurers are not subjected to undue regulatory burdens, given the limited systemic risk posed by their traditional business models.

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