How insurers differ from banks: Implications for systemic regulation

Christian Thimann 17 October 2014

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Regulation of the insurance industry is entering a new era. The global regulatory community under the auspices of the Financial Stability Board (FSB) is contemplating regulatory standards for insurance groups that it deems to be of systemic importance. Nine insurance groups received this FSB classification in 2013, and the design of systemic regulation for these groups is now in progress.

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Topics:  Financial markets

Tags:  insurance, reinsurance, banking, financial intermediation, regulation, systemic risk, maturity transformation, BASEL III, investment, capital, capital requirements, bail-in, loss absorption

Regulating the global insurance industry: Motivations and challenges

Christian Thimann 10 October 2014

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The Financial Stability Board (FSB) has completed its framework for the regulation of systemically important banks (FSB 2013a), and is now turning to the insurance industry. Its approach is inspired by the banking framework, under which 29 banking groups have been classified as systemically important. These banks are subject to a three-pronged framework consisting of enhanced supervision, the preparation of risk- and crisis-management plans, and the application of capital surcharges.

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Topics:  Financial markets Global crisis

Tags:  systemic risk, insurance, global crisis, AIG, regulation, capital requirements, Bailouts, bail-in, financial intermediation, accounting standards, mark-to-market, risk management

A fiscal shock absorber for the Eurozone? Lessons from the economics of insurance

Daniel Gros 19 March 2014

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Even before the euro crisis started, it had been widely argued that the Eurozone needed a mechanism to help countries overcome idiosyncratic shocks. The experience of the crisis itself seemed to make this case overwhelming, and throughout the EU institutions it is now taken for granted that the Eurozone needs a system of fiscal shock absorbers. For example, The Report of the President of the European Council calls for:

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Topics:  EU institutions Macroeconomic policy Welfare state and social Europe

Tags:  eurozone, euro, insurance, fiscal policy, Eurozone crisis, fiscal union, fiscal shocks, fiscal shock absorbers

Googling systemically important insurers

David Veredas, Matteo Luciani, Mardi Dungey 22 April 2013

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An arbitrage opportunity is being created for insurers and, if not overseen, it may entail systemic risks.

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Topics:  International finance

Tags:  insurance

Countercyclical regulation in Solvency II: Merits and flaws

Jon Danielsson, Roger Laeven, Enrico Perotti, Mario Wüthrich, Rym Ayadi, Antoon Pelsser 23 June 2012

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The October 2011 Solvency II draft introduces the possibility of a countercyclical premium. Upon declaration by the regulator – the European Insurance and Occupational Pensions Authority – that distressed market conditions exist, an additional wedge is to be added to the risk-free term structure to value all insurance liabilities subject to fair market valuation.1

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Topics:  EU policies International finance

Tags:  insurance, financial regulation, Solvency II, countercyclical premium

Addressing the incompleteness of long-term care insurance

Joan Costa-i-Font 09 June 2012

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 With rapid population ageing, expenditure on long-term care – that is, care and assistance for old-age dependent elderly – has risen faster than health expenditure. Perhaps surprisingly, this increase is far more due to population ageing than to changes in people’s health (Colombo and Mercier 2012, Breyer et al. 2011).

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Topics:  Health economics

Tags:  insurance, Ageing population, long-term care

What determines the optimal mix of public and private insurance?

Giuseppe Bertola, Winfried Koeniger 29 April 2011

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In all economies, both public policies and private contracts provide insurance. Government-sponsored social insurance programmes cover many health, employment and disability risks. Households can also insure partially against these and other risks in private markets by buying explicit state-contingent insurance or by accumulating wealth.

Insurance is costly and reduces incentives

These insurance schemes cannot and should not cover risk perfectly, for two reasons.

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Topics:  Financial markets Labour markets

Tags:  insurance

Valuing insurers' liabilities during crises: What EU policymakers should NOT do

Con Keating, Jon Danielsson 18 March 2011

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At the height of the last crisis, the market value of the assets of insurance companies fell sharply while the present value of their liabilities remained essentially unchanged. Under recently proposed insurance regulations, similar events might result in insurance firms ending up in breach of regulations, thus requiring them to increase capital quickly to avoid official interventions.

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Topics:  EU policies

Tags:  insurance, liquidity premium, solvency

The rise of obesity in Europe: An economic perspective

Giorgio Brunello, Pierre-Carl Michaud, Anna Sanz-de-Galdeano 06 October 2009

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When comparing obesity rates in Europe and the US, two basic facts emerge:

  • continental Europe has much lower rates of obesity than the UK and US (Figure 1)
  • while Europe is heading in the same direction as the US – higher obesity rates – it is doing so at a significantly slower pace, according to OECD data.

Figure 1. Prevalence of obesity in 2004 among adults (aged 18+) by gender

Source: OECD Health Data (2005)

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Topics:  Health economics

Tags:  obesity, insurance, externalities

Insurance against systemic crises: The real contract between society and banks

Hans Gersbach 08 August 2009

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The current crisis is a brutal reminder of the fragility of banks (Greenlaw et al. 2008, Pagano 2008, Shin 2008, and Hellwig 2008). It will be the most costly ever and has triggered loud calls for draconian re-regulation to protect taxpayers from the next crisis. Before joining the chorus, it makes good sense to take a close look at the alternatives.

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Topics:  Financial markets

Tags:  insurance, systemic crises, banks

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