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No systemic risk in traditional re/insurance: Insurance Europe

20th February 2018 - Author: Steve Evans

Insurance Europe, a European insurance and reinsurance federation, has responded to the International Association of Insurance Supervisors’ (IAIS) pre-consultation on an activities-based approach (ABA) to systemic risk, concluding that systemic risk among re/insurers is rare.

Insurance EuropeThe insurance body says that, “Traditional insurance is not systemically risky and systemic risk from individual insurers can only originate from a very limited number of activities undertaken on a large scale in the wrong conditions.”

Insurance Europe explained that, “A proportionate and properly-designed ABA could address “domino”, as well as “tsunami”, views of risk, given the focus on risk management and preventative actions.”

It noted that this will meet many of the objectives of the current entity-based approach (EBA) to assessment, which it also said was, “Simply not appropriate for assessing systemic risk in insurance, because this risk should always be determined holistically rather than through the use of the current global systemically important insurers (G-SII) assessment indicators that are biased towards measuring the size of an insurance group.”

Insurance Europe also explained that the ABA to systemic risk should guide policy measures, focused in particular on risk management and preventative actions.

“An assessment of systemic risk should go beyond merely identifying whether activities giving rise to potential vulnerabilities exist, but also consider whether the risk stemming from these activities can actually be transmitted to the wider global financial system, and how this is mitigated in practice,” the organisation said.

Additionally, any link to the global financial markets should be clearly identified, while diversification within an insurance and reinsurance group needs to be adequately considered as well.

The materiality of any systemic risk that could be transmitted to the wider financial system also needs to be considered, Insurance Europe said, while any mitigants should also be taken into consideration.

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