Stricter oversight is needed of companies that behave more like investment banks, and engage in activities that pose risks for the entire financial system, says the head of Europe’s insurance regulator.
“We need to limit any potential incentive for typical banking risks to be transferred to the insurance sector,” said Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA), who was speaking at a conference. “If insurance groups heavily develop their business into non-traditional or non-insurance activities then they should expect to be treated in relation to those businesses as if they were banks.”
Bernardino suggested that such activities “are more vulnerable to financial market developments and more likely to amplify or contribute to systemic risk.”
“We should be especially attentive to any kind of maturity transformation and leveraging occurring in the insurance sector,” he added.
Although the sector is regarded as a lesser potential threat than banks as regards risk-taking activities, insurers are nonetheless facing greater scrutiny from regulators. The 2008 financial crisis revealed that a number their non-traditional activities can also pose system-wide risk, including credit default swaps (CDS), financial guarantees and leveraging assets to enhance investment returns through securities lending.
EIOPA is working with other global regulators on a list of so-called Globally Systemically Important Insurers (G-SIIs), similar to one for banks, which might threaten the stability of the international financial system if they were to encounter difficulties.
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