01 August 2012

Insurance Europe critical of IAIS systemic risk methodology

While Insurance Europe welcomes and agrees with the finding by the IAIS that there is little evidence of traditional insurance generating or amplifying systemic risk within the financial system or the real economy, it regrets that this finding is not consistently reflected in the IAIS’s proposed methodology.

The IAIS methodology largely follows the indicator-based approach developed by the Basel Committee for banks, which incorporates a number of criteria and indicators, such as size and global reach, that are not appropriate reflectors of systemic risk in insurance.

“We are disappointed that the approach proposed by the IAIS does not adequately reflect the fact that the banking and insurance business models can have a very different impact on economic and financial stability”, said Michaela Koller, director general of Insurance Europe.

“The methodology developed by the Basel Committee for banking does not work for insurance. The limited adjustments that have been made to it by the IAIS are not sufficient to reflect the existing structural differences between the two sectors.”

Insurance Europe has therefore reiterated an alternative two-step process for identifying and managing systemic risk in insurance that would better suit the specific characteristics of the insurance sector. The first step would be to identify insurers involved in potentially systemically risky activities and to assess those activities. The second step would be to apply measures that target the activities considered systemically relevant, while taking account of any mitigating factors and existing legislation.

As well as the alternative approach, Insurance Europe has also submitted comments and suggestions on the IAIS’s proposed indicators.

Press release

© InsuranceEurope