EIOPA published the first paper in a series on systemic risk and macro-prudential policy in the insurance sector. Through this paper series, EIOPA intends to ensure that any further extension of the debate on systemic risk and macro-prudential policy to the insurance sector fully reflects the specific nature of the industry.
The paper outlines the status of discussion on this topic, along with the lessons that were learned from the financial crisis and the banking sector and affect the insurance sector. The paper then explains the social dimension of macro-prudential policy and financial stability, highlighting that, to the extent that this objective is achieved, macro-prudential policies will also be providing a decisive contribution to minimize the social costs of financial crises in terms of output losses, rising unemployment, and declining living conditions. Next, the paper illustrates dynamics in which systemic risk in insurance can be created or amplified. It also identifies and outlines three potential sources of systemic risk in insurance—that is, entity-based, activity-based, and behavior-based. Finally, the paper includes proposal for a macro-prudential framework for insurance and defines specific operational objectives, based on the identified sources of systemic risk.
Keywords: Europe, EU, Insurance, Systemic Risk, Macro-Prudential Policy, Macro-Prudential Framework, EIOPA
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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