The Insurance Sector - Trends and Systemic Risk Implications

Global Financial Stability Report, IMF

32 Pages Posted: 16 Jun 2016

See all articles by Nico Valckx

Nico Valckx

International Monetary Fund (IMF)

Jorge A. Chan-Lau

International Monetary Fund (IMF) - International Capital Markets Department; National University of Singapore (NUS) - Risk Management Institute; Tufts University - Fletcher School of Law and Diplomacy

Alan Feng

Princeton University - Department of Economics; International Monetary Fund (IMF)

Benjamin Huston

International Monetary Fund (IMF)

Gregorio Impavido

International Monetary Fund (IMF); World Bank

Andreas (Andy) Jobst

International Monetary Fund (IMF) - European Department

John Kiff

International Monetary Fund

Frederic J. Lambert

International Monetary Fund (IMF)

Nobuyasu Sugimoto

International Monetary Fund (IMF)

Kai Yan

Yale University

Date Written: April 01, 2016

Abstract

This chapter describes major insurance sector developments over the past decade and assesses changes in the systemic importance of insurers. Insurance firms play an important role as providers of protection against financial and economic risks and as financial intermediaries.

The chapter shows that across advanced economies the contribution of life insurers to systemic risk has increased in recent years, although it clearly remains below that of banks. This increase is largely due to growing common exposures to aggregate risk, caused partly by a rise in insurers’ interest rate sensitivity. Thus, in the event of an adverse shock, insurers are unlikely to fulfill their role as financial intermediaries precisely when other parts of the financial system are failing to do so as well. The higher common exposures do not seem to be driven by marked changes in insurers’ investment portfolios, although smaller and weaker insurers in some countries have taken on more risk.

The findings suggest that supervisors and regulators should take a more macroprudential approach to the sector. Doing so is necessary if supervision is to go beyond guarding against the solvency and contagion risks of individual firms and take on the systemic risk arising from common exposures. Steps that would complement a push for stronger macroprudential policies include the international adoption of capital and transparency standards for the sector. In addition, the different behavior of smaller and weaker insurers warrants attention by supervisors.

Keywords: insurance, advanced economies, systemic risk, financial stability, macroprudential policy

JEL Classification: G2, G22

Suggested Citation

Valckx, Nico and Chan-Lau, Jorge Antonio and Feng, Alan and Huston, Benjamin and Impavido, Gregorio and Jobst, Andreas A. and Kiff, John and Lambert, Frederic J. and Sugimoto, Nobuyasu and Yan, Kai, The Insurance Sector - Trends and Systemic Risk Implications (April 01, 2016). Global Financial Stability Report, IMF. Available at SSRN: https://ssrn.com/abstract=2795694 or http://dx.doi.org/10.2139/ssrn.2795694

Nico Valckx (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.imf.org

Jorge Antonio Chan-Lau

International Monetary Fund (IMF) - International Capital Markets Department ( email )

700 19th Street NW
Washington, DC 20431
United States

National University of Singapore (NUS) - Risk Management Institute ( email )

21 Heng Mui Keng Terrace
Level 4
Singapore, 119613
Singapore

Tufts University - Fletcher School of Law and Diplomacy ( email )

160 Packard Ave
Medford, MA 02155
United States

HOME PAGE: http://fletcher.tufts.edu/ceme/index.shtml

Alan Feng

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Benjamin Huston

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Gregorio Impavido

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.imf.org

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Andreas A. Jobst

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States
+1-202-538-2898 (Phone)

John Kiff

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Frederic J. Lambert

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nobuyasu Sugimoto

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Kai Yan

Yale University ( email )

New Haven, CT 06520
United States

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