IAIS has published a report on “Reinsurance and financial stability”. It says the hierarchical structure in the reinsurance market, with weak interconnectivity along vertical and horizontal lines, mitigates the propagation of shocks, and that reinsurance groups have shown capacity to absorb idiosyncratic and uncorrelated risks. When those risks are transferred to the capital markets through insurance-linked securities, the fact that primary insurers remain accountable to the original policyholders ensures a high level of risk governance. Only through their involvement in non-reinsurance activity, such as underwriting credit default swaps where these are linked to credit products (for example, collateralised debt obligations), might reinsurers contribute to systemic risk. (Source: Reinsurance and Financial Stability)