1. Systemic Risk and Insurance
London, 29 June 2017

2. 1. The Systemic Risk Assessment Task Force (SRATF)

3. Systemic Risk Assessment Task Force (SRATF)
In January 2017, the IAIS decided to set up a task force to develop a proposal for a holistic framework on systemic risk assessment and measurement, in particular:
further developing the assessment of systemic risk in the insurance sector taking an activities-based approach (work stream 1),
improving to cross-sectoral consistency in systemic risk assessment, with input from the BCBS (work stream 2), and
Reviewing the 2016 G-SII Assessment Methodology, also taking the above into account (work stream 3).
The work will include:
the identification of policy measures (quantitative and qualitative standards) to address systemically risky activities already existing within the current standard setting work;
if needed, proposals for development of policy measures above and over such current standard setting work.

4. Timeline of the risk assessment and policy workplan
The overall timeframe for this project is 2017 – 2019 Major mile stones:
2017
Development of conceptual framework for activities-based approach
Working on cross-sectoral consistency in systemic risk assessment
Consultation on initial findings (expected in November)
2018
Further work based on initial feedback
Review of G-SII Assessment Methodology
Consultation on systemic risk assessment, covering all three project tasks
2019
Finalisation of 2019 revised systemic risk assessment framework
Adoption of ComFrame including ICS Version 2.0 (and relevant ICPs) including identified and (as needed and relevant, new) Policy Measures to address activities assessed as systemically risky
2020
Application of the 2019 Methodology
2022
Implementation of HLA based on the ICS Version 2.0 and the 2020 G-SII list

5. Activities-based assessment (ABA)
The work is still in an early stage of development. In a first step, we could describe ABA as: a horizontal assessment (i.e. aggregating across firms) of potentially systemic activities that in themselves or as a result of common exposures of firms, both on asset and liability side, may be systemically relevant. Activity/exposure: encompasses business lines and exposures that have characteristics that may be systemically relevant. As such, it covers both insurance activities, where product features or management modalities may cause systemic concern, and non-insurance activities. Transmission channel of risks: The analysis has started from three channels for systemic risk transmission already identified in the context of the 2016 revision to the G-SII Methodology: i) the exposure channel; ii) asset liquidation channel; and iii) substitutability.

6. Activities-based assessment (ABA) 2
Comparison of EBA and ABA
Comparison by type of assessment:
EBA – assessment of impact of failure of single institution
ABA – assessment of impact of many failures / sector-wide distress / synchronised responses
Comparison by type of impact
Domino view: The failure of an institution causes shocks to propagate to other institutions (EBA)
Tsunami view: Common exposure causes correlated actions (ABA)
Comparison by scope
EBA: Focus on the institution and thus mostly on the largest institutions
ABA: Focus on activities at sector wide level

7. (Review of) Entity-based assessment EBA
The IAIS is committed to a three-yearly review of the G-SII Methodology to identify systemically important insurers.
It is expected that this review will make improvements to the existing 2016 Methodology taking into account:
Aspects that have already been acknowledged in the 2016 Methodology as well as the “NTNI review”;
the experience in the period 2016 – 2018;
the work on activities-based approach; and
the work on cross-sectoral consistency.

8. 2. Workstream 2 on Cross-sectoral consistency – the IAIS/BCBS initiative

9. BCBS-IAIS joint group on the assessment of cross-sectoral consistency in SIFI frameworks
The joint Task Force will, among other things:
Undertake a stocktake of work done within the BCBS and IAIS on the treatment of insurance subsidiaries of banking groups and of banking subsidiaries of insurance groups.
Assess whether any inconsistency in the G-SIB and G-SII assessment methodologies creates unintended consequences and, if so, propose enhancements to the G-SIB and G-SII frameworks to address these inconsistencies.