Geneva Association insists on increased supervision of non-core activities

Governments and regulatory bodies should focus on insurers undertaking non-core activities that have the potential to pose systemic risk rather than over-regulating all insurers, says the Geneva Association, an international insurance think tank.
In an open letter to the finance ministers and bank governors of the G-20, the Geneva Association reiterated its position that core insurance activities do not pose a threat to the stability of the financial system.
The association says it “remains very concerned about the political decision taken to develop a list of insurance systemically important financial institutions.”
Research shows an insurer’s core activities don’t pose systemic risk, the association says. But “there are two non-core insurance activities that have the potential, in certain circumstances, to be systemically risky,” the letter continued, citing derivatives speculation and associated financial guarantees or the mismanagement of short-term funding.
“New analysis shows that a focus on activity-based indicators (not institutions) will target these potential sources of systemic risk whilst also reducing the regulatory resources required for supervision and the scope for regulatory arbitrage.”
The Geneva Association went on to say the indicators must be embedded in a sound methodology that first identifies systemically risky activities, and then government and regulatory bodies need to measure these activities in a “targeted and effective way.”