IAA Releases Paper on Systemic Risk Regulation

The International Actuarial Association (IAA) is pleased to announce the completion of the paper Actuarial Viewpoints on and Roles in Systemic Risk Regulation in Insurance Markets by the Insurance Regulation Committee.

From the global context, a macro-prudential approach towards the regulation for systemic risk is assumed. The role of actuaries in assisting systemic risk regulators with respect to insurance markets is identified and discussed in a global market context. This paper provides actuaries with the background to address conditions and tools to identify, assess, monitor and mitigate systemic risks.

Products and services provided by the banking, insurance and financial markets, irrespective of regulated or non-regulated, continue to evolve. Globalization is allowing for rapid product and service expansions. Under most economic scenarios, trends in financial modernization increase market efficacy and efficiency. However, as global markets display greater inter-dependencies, there is also greater susceptibility to higher correlations across product lines. In addition, systemic risk is increased where participants have large market shares based upon speculative market positions. Such scenarios could lead to some entities in the insurance sector being a cause of, or a participant in, a systemic risk event.

From a regulatory position, the simple postulation that insurance sector entities will not be a source of future systemic risk events due to historical observation could lead to the failure to identify, assess, monitor and mitigate the critical trends and signs of future systemic risk events.

IAA President Kurt Wolfsdorf states, "The publication of this paper will help actuaries to deal with the assessment of systemic risk in insurance markets. The design of macro-prudential tools used to identify and monitor systemic risk scenarios in insurance markets can benefit from actuarial knowledge and experience."

To learn more about the work of the IAA on this topic, contact the IAA Secretariat, care of the Chairperson of the Insurance Regulation Committee.

The paper is available on the IAA website under Publications - Papers.