The IAIS has recently published a position statement analysing the potential for financial instability in the insurance sector. To view the position statement, please click here.
The IAIS concluded that there was little evidence of insurance generating or amplifying systemic risk within the financial system or the real economy. However, the IAIS has recognised that there are circumstances where insurers may amplify risk, for example where life insurers react to downturns in equity markets or real economy is disrupted through the unavailability of certain insurance products. Non-regulated entities of financial conglomerates and certain insurance activities, such as financial guarantee insurance, may also generate or amplify systemic risk.
The IAIS considers that an effective regime of regulation and supervision can mitigate these possibilities. However, because interdependencies between the sectors may increase in the future via conglomerates, markets and products, the IAIS is promoting improvements to supervision and supervisory processes, combined with stronger risk management and enhanced approaches to resolve and minimise averse external factors. These improvements include:
• group-wide supervision and the development of a common framework for the supervision of internationally active insurance groups, which was previously announced by IAIS in January 2010 (please click here to view the IAIS’s press release);
• promotion of cross-sectoral macro-prudential monitoring of potential build-up of systemic risk; and
• development of measures for national authorities to assess degrees of systemic risk.
