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Financial Stability

Financial stability is a situation in which the financial system is capable of satisfactorily performing its three key functions simultaneously. Firstly, the financial system is efficiently and smoothly facilitating the intertemporal allocation of resources from savers to investors and the allocation of economic resources generally. Secondly, forward-looking financial risks are being assessed and priced reasonably accurately and are being relatively well managed. Thirdly, the financial system is in such condition that it can comfortably if not smoothly absorb financial and real economic surprises and shocks (International Monetary Fund).

In essence, financial stability encompasses the different parts of the financial system, namely, infrastructure, institutions, and financial markets. Because of the links between these components, expectations of disturbances in any one component can affect overall stability, thus requiring a systemic perspective.

Closely interlinked to financial stability is “systemic risk.” Systemic risk refers to a risk of disruption to financial services that is caused by an impairment of all or parts of the financial system and has the potential to have serious negative consequences for the real economy (Financial Stability Board).The IAIS assesses market trends and developments in, or relevant to, the global insurance sector to support its mission of effective and globally consistent supervision to protect policyholders and to contribute to global financial stability. The IAIS also responds to issues that present opportunities, challenges and risks.

Holistic Framework

The Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector was adopted in November 2019. It consists of an integrated set of supervisory policy measures, a global monitoring exercise and implementation assessment activities.

GIMAR

The Global Insurance Market Report (GIMAR), published annually, highlights the outcomes of the Global Monitoring Exercise, which is aimed at assessing global insurance market trends and developments and detecting the possible build-up of systemic risk in the global insurance sector.

G-SIIs (Archive)

In 2013, the IAIS adopted an assessment methodology to support recommendations on the identification of global systemically important insurers (G-SIIs) and policy measures to apply to these institutions. With the adoption of the Holistic Framework, the G-SII identification has been suspended.