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Tuesday 31 August 2010
Author: Russell Group

The financial crisis has increased the determination of insurance supervisor to get a firmer hold on the activities of those they regulate.

The International Association of Insurance Supervisors (IAIS) published its Global Reinsurance Market Report (GRMR) saying increased awareness of the complex risks posed to insurance and reinsurance sector have to be understood and accounted for in future supervisory regimes.

The report found that in contrast to the banking sector, macroprudentialsurveillance was not formalised amongst supervisors in the insurance sector. It found that 50% of supervisors carry out insurance market-wide stress testing however; approximately 20% of those who do not stress test their markets have plans in place to do so within the next 12 months.

The association said that insurance related macroprudential surveillance “has distinct features which have effectively responded to the needs of the sector”, with mortality and catastrophe risks cited as examples.

While the report found the reinsurance industry had proved its strength in terms of capitalisation and solvency, in particular as the as the crisis peaked, the association maintained that with concerns over sovereign debt crisis and the impact of new regulation, the risks posed by the economic crisis are still at large.

The report stated: “It is widely agreed that macroprudential surveillanceinvolves at least market-wide data analysis and synthesis, early warning systems of potential financial instability, and supervisory cooperation via global and multi-national forums.

“The IAIS is committed to furthering the understanding of macroprudentialsurveillance as a part of effective supervision and to suggesting possible tools and methods for carrying it thoughtfully forward. With macroprudentialsurveillance, we are grappling with something which is still unfolding on the worldwide stage, as supervisory regimes evolve to meet the market complexities brought to the fore by the financial crisis. We meet our commitment to market transparency by discussing the currentmacroprudential surveillance practices of (re)insurance supervisors and the challenges supervisors face, and by openly exploring possible solutions and global coordination mechanisms, grounded in the lessons learned from the financial crisis.”