FSB welcomed the proposal of IAIS on holistic framework for the assessment and mitigation of systemic risk in the insurance sector. The framework sets out the activities-based approach for sector-wide risk monitoring and management, along with the tools for dealing with the build-up of risk within individual insurers. Comments on the consultation are invited by January 25, 2019. The holistic framework is slated for adoption in late 2019, with implementation beginning in 2020.
In its framework, IAIS proposed to evolve its current approach to systemic risk by:
- Recognizing that systemic risk may arise from both the collective activities and exposures of insurers at a sector-wide level as well as from the distress or disorderly failure of individual insurers
- Addressing cross-sectoral aspects of systemic risk, by comparing the potential systemic risk stemming from the insurance sector with other parts of the financial system
- Moving away from a binary approach in which certain additional policy measures are only applied to a relatively small group of insurers (the identified global systemically important insurers, or G-SIIs), to an approach with a proportionate application of an enhanced set of policy measures targeted at the exposures, and to activities that can lead to systemic risks from the insurance sector
The holistic framework includes the following key elements:
- An enhanced set of supervisory policy measures for macro-prudential purposes providing the preemptive part of the framework
- A global monitoring exercise by IAIS designed to detect the possible build-up of systemic risk in the global insurance sector at an individual insurer level and at the sector-wide level
- Where a potential systemic risk is detected, supervisory powers of intervention that enable a prompt and appropriate response
- Mechanisms that help ensure the global consistent application of the framework, through a collective assessment of potential global systemic risk and a coordinated supervisory response, when needed
- An assessment by IAIS of the consistent implementation of enhanced ongoing supervisory policy measures and powers of intervention
In light of the progress with the proposed holistic framework, FSB, in consultation with the IAIS and national authorities, has decided not to engage in an identification of G-SIIs in 2018. FSB will assess the recommendation of IAIS to suspend G-SII identification from 2020 once the holistic framework is finalized in November 2019. In November 2022, FSB will, based on the initial years of implementation of the holistic framework, review the need to either discontinue or re-establish an annual identification of G-SIIs, in consultation with the IAIS and national authorities. FSB will receive, from IAIS, an annual update of the IAIS assessment of systemic risk in the global insurance sector and of the supervisory response. IAIS will continue its annual global monitoring exercise, including the annual data collection from individual insurers, building on the current G-SII data collection template and instructions, and implement additional data collection from supervisors, as necessary, to support an assessment of sector-wide trends on specific activities and exposures.
Related Link: Press Release
Comment Due Date: January 25, 2019
Effective Date: Beginning of 2020
Keywords: International, Insurance, Systemic Risk, Holistic Framework, G-SII, FSB, IAIS
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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