Monitoring Interest Rate Risk, Lower Interest Rate Study
April 2016, Presentation to NAIC Financial Stability (EX) Task Force
IAIS Releases 2015 Global Insurance Market Report
March 2016, CIPR Newsletter
Macroprudential Surveillance in the Insurance Sector, A
Challenge Brought to the Fore by the Financial Crisis
December 2012, IAIS Newsletter
The Emerging Role of Macroprudential Surveillance in Insurance
October 2011, CIPR Newsletter
Systemic Risk and the U.S. Insurance Sector
February 2010, Mary A. Weiss, Ph.D., CIPR Distinguished Scholar
The Financial Crisis, Systemic Risk, and the Future of
September 2009, Scott E. Harrington, Ph.D. (Posted with permission from the National Association of Mutual Insurance Companies)
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International Insurance Technical Policy Advisor
Director, Financial Regulatory Policy & Data
Assistant Director, Financial Policy and Legislation
Last Updated 3/06/2019
Issue: Macroprudential monitoring involves analyzing how the insurance sector is impacted by, reacts to, and contributes to financial, economic and other common risk exposures. Understanding these relationships is critical to maintaining strong and competitive insurance markets. Post financial crisis the NAIC implemented several reforms as part of our Solvency Modernization Initiative (SMI) that continue to serve us well today in achieving our regulatory responsibilities. In the ensuing years since the crisis, insurers have had to contend with sustained low interest rates, changing demographics and rapid advancements in communication and technology. They have responded by offering new products, adjusting investment strategies, making structural changes and expanding into new global markets. There are new market players, new distribution channels, and a complex web of interconnections between financial market players.
What has not changed since the financial crisis is the intense scrutiny on the insurance sector in terms of understanding how insurers react to financial stress, and how that reaction can impact, via various risk transmission channels, policyholders, other insurers and financial market participants, and the broader public.
The proposed new work on macroprudential measures is reflective of the state insurance regulators' commitment to ensure that the companies they regulate remain financially strong for purposes of policyholder protection. Macroprudential measures should also serve as a stabilizing force to contribute to financial stability, including in stressed financial markets. The NAIC's Macroprudential Initiative (MPI) is a logical continuation of the SMI project and should bolster the confidence of insurance consumers and investors, and further enhance the credibility of the state system of insurance regulation.
The NAIC's MPI commenced in April 2017 when new charges were assigned to the Financial Stability Task Force by the NAIC Executive Committee. The goal of MPI is to consider some new or improved tools that we can use to:
The Financial Stability Task Force's MPI efforts focus on identifying potential enhancements in four key areas, including:
Status: The Financial Stability Task Force is continuing to make progress and develop solutions in the MPI focus areas.
The Task Force sponsored many reporting changes proposed by the Subgroup. These reporting changes were adopted by the NAIC Plenary for inclusion in the 2019 data year statutory life annual statements (filed in 2020). These changes primarily increase the level of detail in product category reporting in the life annual statement, allowing regulators to more readily identify companies with material writings in product types that may possess higher liquidity risk.
The Subgroup is currently working to construct a liquidity risk stress testing framework for large life insurers. The results of this work will benefit solvency regulators overseeing these companies. However, the work is primarily meant to inform the Task Force regarding what material impact, if any, the life insurance industry would have on the broader financial markets in the event of certain stresses. The scope criteria to identify which life insurers should be subject to the liquidity stress test was adopted. Additionally, this criterion will be reviewed and modified as needed on an ongoing basis. The work is now focused on the construction of the liquidity stress test, using a cash flows approach, and the associated regulatory stress scenarios.