FINANCIAL STABILITY AND INSURANCE
Since the financial crisis erupted in 2008, policymakers around the world have been working on improving financial markets oversight in order to achieve global financial stability. The insurance sector, as part of the financial sector, is also subject to scrutiny and study for enhanced macro-regulation.
As the crisis has evolved, The Geneva Association has provided research support that explains and differentiates insurance from other financial sector players, such as banks. With a number of working groups, comprising leading experts specialising in various fields from its member companies, The Geneva Association has produced influential research on Systemic Risk in Insurance as follows:
In response to the G-20’s mandate to the Financial Stability Board (FSB) to promote Financial Stability within the global Financial Sector, The Geneva Association Financial Stability in Insurance (FSI) Steering Committee and FSI Working Group were assigned the coordination of all FSI efforts in 2009. A key element of this G-20 mandate has been to identify entities whose failure could pose systemic risk to the global financial services and wider economy. To that end, the working group has produced the reports listed above, as well as additional studies. These reports provide valuable insights and key contributions to the debate. In these reports, The Geneva Association has presented its activity-based methodology for identifying Systemically Important Financial Institutions (SIFIs). Its central message is that core insurance activities are not of a systemic nature, but certain non-core activities might be under certain circumstances.
The Geneva Association has also been heavily involved in shaping the dialogue around Financial Stability in Insurance by providing industry-specific expertise to different bodies such as the Organisation for Economic Co-operation and Development (OECD), the IMF, the IAIS, the G-20, the FSB, and trade associations, among others. The main goal was to clarify the particularity of insurance and its unique business model. Several prominent letters have been written to the G-20 highlighting our key messages.
The Geneva Association will continue its diligent work and analysis in the FSI dialogue. It will continue providing key insight to ensure the appropriate measures for FSI are undertaken with in-depth analysis.
The Geneva Association is proud to announce that it was awarded Worldwide Reinsurance Awards' Global Re/Insurance Initiative of the Year 2012. The award was made by a panel of 10 independent senior industry executives for the Association’s research and contributions to the discussions on the regulation and supervision of systemic risk in insurance. More details.
Below are links to the body of work published by The Geneva Association.
Special reports on financial stability
► Variable Annuities—An Analysis of Financial Stability
(March 2013) The Geneva Association has published this report on variable annuities to inform those discussions by providing a clear analysis of the functioning of VA products and the activities of insurers in providing them.
►Key Financial Stability Issues in Insurance—An account of The Geneva Association's ongoing dialogue on systemic risk with regulators and policy-makers
(July 2010) This report is based on a series of background papers and special presentations on systemic risk in insurance created between March and June 2010. It summarises the insurance industry's thinking—as advanced and crystallised by The Geneva Association—on areas including corporate activities (e.g. asset management) and regulatory measures (e.g. crisis resolution mechanisms).
► Systemic Risk in Insurance—An analysis of insurance and financial stability
► Anatomy of the credit crisis—An insurance reader from The Geneva Association (Geneva Reports No. 3)
(March 2010) The Geneva Association published a special report analysing the role of insurance in financial stability and its systemic relevance. The report has been provided to inform and support supervisors and policy-makers in their discussions on the development of measures to address the complex problem of systemic risk underlined during the financial crisis.
(14.01.2010) In this special Geneva Report, The Geneva Association has assembled a series of key articles written during and on the subject of the credit crisis, compiling them into an insurance "reader". This reader provides an insight into the credit crisis from an insurance point of view, looks at its impact on the insurance industry and finally examines the episode for lessons-learned and concerns that remain.
► Surrenders in the Life Insurance Industry and their Impact on Liquidity
(August 2012) Offering a comprehensive understanding of the effects of liquidity stresses in insurance, this report seeks to highlight the mechanisms and exisiting resilience and responses of the industry to liquidity crunches and thereby provides a basis of understanding for any futher discussions on the issue.
Geneva Association contributions for downloading
► IAIS Policy Measures Consultation Response (17 December 2012)
► Cross Industry Analysis—28 G-SIBs vs 28 Insurers: Comparison of systemic risk indicators (11 December 2012, updated 12 February 2013)
► The Geneva Association Response to the IAIS G-SII Methodology Consultation (31 July 2012)
►Geneva Association Signs Network of Insurance Associations' letter to the G-20 (6 June 2011)
►IAIS and FSB project on systemically important financial institutions (SIFIs), IAIS Financial Stability Committee Hearing, Kansas City, 5 May 2011
►Considerations for Identifying Systemically Important Financial Institutions in Insurance—A contribution to the FSB and IAIS's discussions
(April 2011) The Geneva Association’s efforts in the field of Financial Stability in Insurance continue with this report which addresses two fundamental areas that are currently occupying policy-makers’ and regulators’ agenda: in Part I “A Methodology to Identify Systemically Important Financial Institutions (SIFIs) in Insurance”, and in Part II “An Analysis of the AIG Collapse: understanding systemic risk and its relation to insurance”.
► Orientation paper for SIFI discussions in insurance (7 April 2011)
► Insurance industry's perspective on and contribution to the G-20/FSB/IAIS project on systemic risk—Slides for use in discussions with stakeholders (23 March 2011)
► Assessment of systemic risk indicators in the insurance sector—IAIS Observer Hearing, 17 February 2011
► Industry's response to IAIS and FSB project on systemically important financial institutions—IAIS Financial Stability Committee, Basel, 7 December 2010
► The Lack of an Appropriate Definition of Systemic Risk
(July 2010) In the editorial of Insurance and Finance No. 6 Patrick M. Liedtke examines the existing definitions of systemic risk and their relevance to current financial reform.
► Systemic Risk in Insurance—Presentation to the NAIC, 29 March 2010
► The Global Financial Crisis and the Insurance Industry—Frequently Asked Questions (Insurance and Finance SC 9)
(11 March 2010) This contribution about the current credit crisis addresses frequently asked questions about the credit crisis.
► "Insurance and the Crisis Resolution" (Insurance and Finance No. 5)
(24.09.2009) Patrick M. Liedtke examines the proposals for reform in the post-crisis environment in four specific areas: financial stability and insurance, supervision and regulation, risk management, and accounting and value measurement.
► "Consequences of the Financial Crisis to the IASB Insurance Project" (Insurance and Finance No. 5)
(18.09.2009) Joachim Kölschbach and Stefan Engeländer present their proposals of "reliable fair value" intented to ensure the objectivity and transparency, avoiding unnecessary complex and subjective estimations.
► "The Financial Crisis and Insurance: Lessons Learned and How CEIOPS is Implementing them within the Solvency II Project" (Insurance and Finance No. 5)
(10.09.2009) Carlos Montalvo Rebuelta, Secretary General, CEIOPS, presents the lessons to be learned following an approach that mirrors the pillar structure of Solvency II.
► "Restoring Trust in the Financial Markets" (Insurance and Finance No. 5)
(7.09.2009) In the wake of the subprime crisis, the public's faith in financial markets has been massively shaken. Kai-Uwe Schanz looks at what to do. He also interviews Thomas Streiff, CEO of the Sustainability Forum Zürich.
► G-20 Falls Short on Insurance (Insurance and Finance SC 5)
(7.04.2009) On 7 April 2009, the Financial Times published a letter by The Geneva Association concerning the statement of the G-20 leaders following their London Summit of 2 April 2009.
► Insurance Comments to the G-20 London Summit Leaders' Statement (Insurance and Finance SC 4)
(6.04.2009) by Patrick M. Liedtke, Secretary General and Managing Director, The Geneva Association.
► Lessons from the Credit Crisis: An Investment Practitioner's Point of View (Insurance and Finance SC 3)
(20.02.2009) Guido Fürer and Jérôme Haegeli want to take stock of what they think should be the lessons learnt from an investment practitioner's point of view in order to avoid repeating the same mistakes in the next crisis, which will without a doubt come unexpectedly as well.
► "On Risk, Rescue and Hazards - The Global Crisis" (Insurance and Finance 4)
(10.02.2009) by Patrick M. Liedtke, Secretary General and Managing Director, The Geneva Association.
► "Navigating the storm"
(24.12.2008) In this article from Global Reinsurance Patrick M. Liedtke and Kai-Uwe Schanz provide an overview of the global credit crisis, and an outlook for the future.
► "Maintaining stakeholder trust in difficult times: What insurers can do"
(4.12.2008) In this article, Kai-Uwe Schanz, Advisor to The Geneva Association discusses the vital importance of stakeholder trust to the insurance industry. He also suggests specific ways of maintaining trust in difficult times such as the current credit crisis and economic downturn.
Other documents of interest
► Financial Stability Report 2011: Second half year report
(19.12.2011) EIOPA’s Financial Stability Committee (FSC) has updated its report on the financial stability of the insurance and occupational pension fund sectors in the EU/EEA. The current report covers developments in financial markets, the macroeconomic environment, and the insurance, reinsurance and occupational pension fund markets. This publication is available free of charge at EIOPA’s website.
► Insurance and Financial Stability
(November 2011) This paper by the IAIS presents a supervisory perspective on the (re)insurance sector and on financial stability issues. It analyses the sector’s role in the financial markets, including its interaction with other financial institutions, and its impact on the real economy. In addition, the International Association of Insurance Supervisors (IAIS) endeavours to clarify the rationale of its proposed methodology to identify any institutions “whose disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruptions to the wider financial system and economic activity.”
► Intensity and Effectiveness of SIFI Supervision: recommendations for enhanced supervision
(02.11.2010) This report, by the FSB, sets out recommendations for making the supervision of financial institutions more intense, effective and reliable. The recommendations are drawn from an internationally co-ordinated assessment of lessons from this crisis. While the recommendations are primarily aimed at making SIFIs less susceptible to failure, there are also lessons for the supervision of financial institutions more generally.
(November 2011) The BCBS’s “Global systemically important banks: assessment methodology and the additional loss absorbency requirement” sets out the measures developed by the Basel Committee on the assessment methodology for global systemic importance, the magnitude of additional loss absorbency that G-SIBs should have, and the arrangements by which they will be phased in. This delivers on a request by the FSB as set out in its document Reducing the moral hazard posed by systemically important financial institutions – FSB Recommendations and Time Lines, which was endorsed by G20 Leaders in November 2010.
► Non-Bank Designation NPR
(26.01.2011) The proposed rule and attached guidance, created by FSOC describe the manner in which the Council intends to apply the statutory standards and considerations, and the processes and procedures that the Council intends to follow, in making determinations under section 113 of the Dodd-Frank Act. The Council issued an advance notice of proposed rulemaking on 6 October 2010, and a notice of proposed rulemaking on 26 January 2011, regarding determinations under section 113.
► Restoring Trust in the Financial Markets: Time to Think Sustainability
(29.9.2009) This discussion paper by the Sustainability Forum Zürich explores main reasons for the current economic and financial crisis and, more importantly, ways of preventing or at least reducing the scale of similar dislocations going forward. The Sustainability Forum's approach is rooted in the notion of sustainability which is applied to financial markets, corporate business models, corporate governance structures and the realm of public policy. The paper reflects the outcome of a series of interviews with respected experts and executives.
► Emerging from the Storm: The Day after Tomorrow for Insurance
(12.09.2009) This report by PricewaterhouseCoopers LLP examines how the financial crisis is set to reshape the industry as a whole, along with some of the key developments that are likely to affect particular segments and geographical markets.
► Insurance Risk Management Response to the Financial Crisis
(5.5.2009) This paper summarises the CRO Forum’s views on the key elements of effective risk management, the differences between insurance and banks’ approaches to risk management, and the importance of economic-based group supervision for cross-border (re)insurers. It covers five major themes which the CRO Forum considers to be adequate responses to the crisis.
► Swiss Re's Economic Forum 2008: The financial crisis and its effects on global insurance – outlook for 2009
(12.12.2008) Swiss Re's senior economists have reviewed the turmoil in the global financial markets in 2008 and provided an outlook for the global economy and world insurance in 2009.
► Dedicated insurers are not a systemic risk
(3.12.2008) D.M. Hofmann and A.P. Lehmann from the Zurich Financial Services Group warn against lumping banks and insurance companies together. They are also of the opinion that the insurance industry has had a stabilizing influence on the financial system in recent times thanks to its anti-cyclical investment behaviour.
► Eight key messages on the financial turmoil
(14.11.2008) The CEA publishes messages on the financial turmoil for the European insurance sector.
► Global insurers take a hit in the third quarter, but ratings should withstand the test
(12.11.2008) Standard & Poor's Ratings Services examine whether, in their view, global insurers can maintain their resilience.
► CRO Forum response to the financial crisis
(23.10.2008) The CRO Forum’s views on the consequences for Enterprise Risk Management and regulation in the insurance industry and the accompanying press release.
► The insurance industry at a time of financial crisis and economic recession
(16.9.2008) Swiss Re Senior Economist Christian Schmidt provides some perspectives for the insurance industry at a time of financial crisis and economic recession.
A special issue on Insurance and Finance of The Geneva Papers on Risk and Insurance – Issues and Practice has been published in July 2012. More...