|Targeted News Service|
The debate on systemic risk regulation in insurance is at a critical point.
Insurance plays a vital role in society. It brings benefits such as the pooling of risk, the provision of transparent pricing to a wide range of risks, offers financial protection for individuals, and bolsters the resilience of businesses and governments. "It is therefore essential to develop a regulatory framework that is properly tailored to the insurance business model, one that takes full account of its intrinsic characteristics and does not threaten to undermine its social and economic benefits," said Mr.
The IAIS acknowledges that there is little evidence of traditional insurance and reinsurance either generating or amplifying systemic risk within the financial system or the real economy. This view is shared by the IIF, and should be clearly reflected in the IAIS G-SII methodology and policy measures. Traditional insurance groups provide important benefits to the economy - as shock absorbers and long-term investors - but they are not sources of financial turbulence. Consequently, regulators should focus their attention on non-traditional and non-insurance activities which might be potentially systemically risky, in order to address systemic risk concerns. Only insurance groups that engage significantly in such activities without proper prudential oversight and adequate risk governance may become vulnerable to financial market developments, and therefore might be considered to potentially pose systemic risk.
The IIF is particularly concerned over the potential introduction of blanket capital requirements. In insurance, capital requirements must not punish size or global activity, as that would be a disincentive for effective risk pooling. Increasing the size and global activity of an insurer permits the pooling of risk, thereby contributing to greater financial stability and welfare. A blanket capital surcharge on large global insurers would reduce the efficiency of risk pooling and lead to more expensive insurance, less risk capacity and, ultimately, greater reliance on state protection.