Liquidity Risk in Insurance: A topical perspective

Author: Dennis Noordhoek, Director Public Policy & Regulation

Liquidity Risk in Insurance report cover

The 2023 regional banking crisis in the U.S. put liquidity risk in the financial sector back under the spotlight. In insurance, trends such as increasing investments in alternative assets have further heightened concerns among regulators.           

This issue brief assesses the validity of these fears by taking a close look at liquidity risk in the insurance sector. It examines how liquidity risk differs between banking and insurance, as well as by line of business within insurance, and the techniques insurers employ to manage it. The insurance business model is found to be inherently resilient to liquidity risk, and is reinforced by the use of stress testing, robust risk management frameworks and liquidity contingency plans. These practices largely allow insurers to mitigate the higher liquidity risk associated with alternative assets.