The International Association of Insurance Supervisors (IAIS) has launched a consultation to seek public feedback on a proposed holistic framework for the assessment and mitigation of systemic risk in the insurance sector, a key component of the post-financial crisis reform agenda.
With this, the IAIS proposes to evolve its current approach to systemic risk by:
- Recognising that systemic risk may arise from both the collective activities and exposures of insurers at a sector-wide level as well as from the distress or disorderly failure of individual insurers;
- Addressing cross-sectoral aspects of systemic risk, by comparing the potential systemic risk stemming from the insurance sector with other parts of the financial system; and
- Moving away from a binary approach in which certain additional policy measures are only applied to a relatively small group of insurers (the identified G-SIIs), to an approach with a proportionate application of an enhanced set of policy measures targeted at the exposures and activities that can lead to systemic risks from the insurance sector as a whole.
The holistic framework includes the following key elements:
• An enhanced set of supervisory policy measures for macroprudential purposes providing the pre-emptive part of the framework;
• A global monitoring exercise by the IAIS designed to detect the possible build-up of systemic risk in the global insurance sector at an individual insurer level and at sector-wide level;
• Where a potential systemic risk is detected, supervisory powers of intervention that enable a prompt and appropriate response;
• Mechanisms that help ensure the global consistent application of the framework, by having a collective assessment of potential global systemic risk and a coordinated supervisory response when needed; and
• An assessment by the IAIS of the consistent implementation of enhanced on-going supervisory policy measures and powers of intervention.
IAIS executive committee chair Dr Victoria Saporta said, “The publication of this consultation document is a significant step forward in the IAIS’ contribution to broader financial stability. Appropriately implemented, this holistic framework will provide an enhanced basis for mitigating systemic risk in the insurance sector”.
The consultation document, Holistic Framework for Systemic Risk in the Insurance Sector, is available here with a 25 January 2019 deadline for submissions. A public background session will be held via teleconference on 29 November 2018 to discuss the material published for consultation.
The holistic framework is slated for adoption in late 2019, with implementation beginning in 2020. The IAIS will further refine the proposed framework, taking account of the public consultation feedback.