The Global Reinsurance Market Mid-Year Report recently released by the International Association of Insurance Supervisors (“IAIS”) focuses on the extent to which regulators of insurance and reinsurance companies are gathering data and engaging in macroprudential analysis of the reinsurance sector. The report contains three parts: (1) a discussion of what a macroprudential surveillance approach means in this context; (2) examples of such activities in the United States (through the NAIC), India, Europe and globally through the World Bank and the International Monetary Fund; and (3) a “case study” of such surveillance efforts. It is interesting that the fragmentation of regulation in the United States among the states is viewed as beneficial to this analysis, because it illustrates a possible global model in which one entity (the NAIC in the U.S. model) would gather data and provide stress testing on a broad scale across multiple jurisdictional lines. To some, this may overstate the NAIC’s activities in the reinsurance sector. The unspoken assumption is that the IAIS would serve that global role, and the report touts its data gathering activities as a first step along this path.

Highlights from the report:

  • While the meaning of macroprudential surveillance in insurance and reinsurance varies by jurisdiction, such activities are geared towards identifying, assessing and monitoring risks to the financial system. These activities include gathering and analysis of macroeconomic and financial market information, and of how these data interact with each other.
  • The current global financial crisis has highlighted the complexities inherent in capturing and making sense of risks that evolve rapidly in time, and cut across geographical boundaries and financial sectors.
  • Although most supervisory authorities do not have a formalized definition of macroprudential surveillance, nearly all of them carry out some such activities.
  • The two most prevalent macroprudential surveillance activities are insurance market analysis and analysis of the impact of macroeconomic variables on the insurance market. In both instances, the focus tends to be on the analysis of domestic data, with international data analysis receiving comparatively less attention.
  • Under 50% of regulators carry out insurance market-wide stress testing; however, approximately 20% of those who do not stress test their markets have plans in place do so within the next 12 months.
  • Macroprudential surveillance activities appear to assist regulators in: (1) identifying and assessing relevant changes in insurance markets as well as macroeconomic factors affecting these markets; (2) providing early warning signals of emerging risks, and enabling prompt action; (3) providing value-adding information for forward-looking monitoring; and (4) identifying futures issues that may affect the insurance market.
  • There is limited information available on insurance-specific macroprudential surveillance activities at the global level collected and compiled by insurance regulators.