International regulator emphasizes “non-traditional” risk for insurers

The International Association of Insurance Supervisors (IAIS) is targeting risky, non-traditional activities of large insurance companies that may pose a threat to the global economy.

“The potential for systemic risk within the insurance sector needs to be considered where insurers deviate from the traditional insurance business model and more particularly where they enter into non-traditional or non-insurance activities,” said IAIS chair Peter Braumüller. However, he acknowledged that traditional insurance does not “generate or amplify systemic risk” within the financial system or in the real economy.

The international regulator recently released a proposed assessment methodology that involves data collection, assessment and supervisory judgment and validation under five categories for insurance companies. These categories include size, global activity, interconnectedness, suitability and non-traditional insurance and non-insurance activities.

The Financial Stability Board (FSB), which endorsed the IAIS methodology and is overseeing the risks of global “systemically important financial institutions (SIFIs),” has published a list of 29 identified banks. Forty-eight large insurers will be assessed according to the IAIS framework to see if they warrant inclusion on the list, under the category “global systemically important insurers (G-SIIs).”

These assessment measures from the IAIS and FSB are part of a broader response to the financial crisis from leaders of the world’s top economies (G20), which want to identify major banks and other companies that may pose a risk to the global financial system.