NU Online News Service, Nov. 17, 3:10 p.m.EST

Underwriting risks are typically not linked to the economicbusiness cycle and financial market risks. Therefore, traditionalinsurance companies do not pose a systemic risk, concludes a newreport by the International Association of Insurance Supervisors(IAIS).

"The financial crisis of 2008/09 has shown that, in general, theinsurance-business model enabled the majority of insurers towithstand the financial crisis better than other financialinstitutions," says the IAIS.

"Consistent with earlier input from the American InsuranceAssociation and the Financial Stability Board's (FSB) definition ofsystemically-important financial institutions, the IAIS concludedthat insurers' business model is much different from banking," saysDavid Snyder, vice president and associate general counsel for theAIA, in an email. "Therefore, insurers engaged in traditionalinsurance activities do not, according to the IAIS, generally posea systemic risk.  AIA will continue to provide input tothe IAIS, FSB and FSOC [Financial Stability Oversight Council] asongoing deliberations are underway regarding [systemicallyimportant financial institutions] and global-SiFi methodology andpotential designation." 

Traditional insurance companies are less likely to suffer acatastrophic drain of liquidity because an insured event is neededto create a loss and investment portfolios are able to absorblosses.

However, the IAIS says large insurance conglomerates withnontraditional or non-insurance activities could contribute tosystemic risk.

"One lesson of the financial crisis was that the systemicrelevance of insurance groups is correlated with the influence ofactivities outside of the traditional insurance business field,"says the report.