On 31 May 2012, the International Association of Insurance Supervisors (IAIS) released its proposed assessment methodology for the identification of global systemically important insurers (“G-SIIs”). The proposed methodology involves:

• The collection of data
• An indicator-based assessment of the data
• A process of supervisory judgement and validation

The process has eighteen indicators, divided into the following five categories:

• Size
• Global activity
• Inter-connectedness
• Non-traditional insurance and non-insurance activities
• Substitutability

The Financial Stability Board, upon which the IAIS is represented, is co-ordinating an overall set of measures to reduce the moral hazard posed by global systemically important financial institutions.

On 19 July 2012, IAIS released a policy paper entitled ‘Reinsurance and Financial Stability’ which addresses reinsurance-specific concerns in the context of examining the stability of the global financial system.  Some of the concerns examined include:

• Market concentration rates
• Risks arising from accumulations and high value risks
• Issues associated with alternative risk transfer

The IAIS finds that traditional reinsurance was unlikely to cause, or amplify, systemic risk due to the hierarchical structure of the insurance market. 

The IAIS also finds that alternative risk transfers do not facilitate credit intermediation, though some alternative-risk-transfer products could result in financial market interdependence in situations where, in substance, they entail little or no risk transfer.  The IAIS concludes that empirical studies will be necessary before any conclusions can be drawn on whether or not such activities could amplify or contribute to systemic risk.