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Annex 3 of the ESRB Report on Systemic Risks in the EU Insurance Sector
European Systemic Risk Board research note sets out features of insurance that could be considered sources of systemic risks, what scenarios of material disruption could develop, and what impact these might have on the real economy and financial system. Identifies four key scenarios as potential sources of systemic risk: i) involvement in non-traditional, non-insurance activities, such as certain guaranteed returns and writing of speculative derivatives, exposes insurers to financial risks; ii) potential for pro-cyclical behaviour which can amplify financial market or real economy cycles, booms or stresses; iii) scenarios involving multiple failures may be result of common vulnerabilities to asset stresses and simultaneous prolonged low interest rates (i.e. risk of a double hit); and iv) aggressive pricing and uncontrolled growth are factors that might endanger continuity of insurance coverage provision by driving competitors out of business and diminishing natural substitutability across different providers of insurance coverage.
Publisher:
Regional Standard-Setting Bodies
Release date:
Dec 2015
Type:
Consultative, discussion and issues paper
Parent:
Report on Systemic Risks in the EU Insurance Sector
Peer:
The Role of the Insurance Sector in the Economy, Interconnectedness of the European Insurance Sector , Systemic Risks of Reinsurers, Incentives in Prudential Regulation of Insurers, Macroprudential Policies and Instruments to Mitigate or Prevent Identified Systemic Risks of Insurers
Topics:
Systemic risk, Macroprudential
Sectors:
Insurance
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