Financial fragmentation could amplify shocks across global insurance markets, and while implications are likely to be manageable, risks could become more significant when combined with broader asset market stress, highlighting the importance of preparation and resilience, according to a new Geneva Association report.
As geopolitical tensions increasingly shape cross-border finance, institutions face a more complex environment for international risk transfer, investment and capital management.
The report warns that growing divisions restrict access to cross-border reinsurance, drive up coverage costs, and force insurers to retain disproportionally more risk within local markets.
Over time, these constraints undermine geographic diversification and lead to structurally less efficient capital allocation across the industry.
In case of a major financial market stress, the report notes, fragmentation would amplify insurers’ balance sheet stress if liquidity and capital buffers are strained.
To navigate these headwinds, the report suggests insurers must reconfigure their risk transfer strategies, adapt their capital structures and strengthen their liquidity management.
At the same time, policymakers also have a role to play by maintaining cross-border supervisory cooperation and safeguarding payment and settlement infrastructure.
Jad Ariss, Managing Director of the Geneva Association, commented: “The global economy is entering a new phase in which geopolitical considerations are playing a greater role in shaping financial markets.
“For an industry built on international risk sharing and long-term investment, understanding how these changes affect the resilience-enhancing role of insurers is essential.”
Darren Pain, Director of Research at the Geneva Association and co-author of the report, said: “Financial fragmentation affects insurers through multiple channels simultaneously – from reinsurance markets to investment portfolios and liquidity.
“By examining both sides of insurers’ balance sheets together, our report provides tools to analyse how financial fragmentation can influence the industry’s resilience and where firms should focus their preparations.”
