Macroprudential Supervision in Insurance

Also by Jan Monkiewicz

THE FUTURE OF INSURANCE REGULATION AND SUPERVISION: A Global Perspective ( edited with Patrick M. Liedtke )

THE INSTITUTIONAL FRAMEWORK FOR GLOBAL INSURANCE REGULATION AND SUPERVISION: The Changing Landscape ( with Patrick Liedtke )

Macroprudential Supervision in Insurance Theoretical and Practical Aspects

Edited by

Jan Monkiewicz Warsaw University of Technology, Poland

and

Marian Małecki Geneva Association, Poland

Editorial matter and selection © Jan Monkiewicz and Marian Małecki 2014 Remaining chapters © Respective authors 2014 Foreword © Marek Belka 2014

All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission.

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Library of Congress Cataloging-in-Publication Data

Macroprudential supervision in insurance : theoretical and practical aspects / edited by Jan Monkiewicz, Warsaw University of Technology, Poland, Marian Małecki, Geneva Association, Poland.

pages cm Includes bibliographical references. 1. Insurance – State supervision. I. Monkiewicz, Jan.

HG8111.M33 2014354.8�5—dc23 2014018840

Softcover reprint of the hardcover 1st edition 2014 978-1-137-43909-3

ISBN 978-1-349-49417-0 ISBN 978-1-137-43910-9 (eBook)DOI 10.1057/9781137439109

v

Contents

List of Figures vii

List of Tables viii

Foreword ixMarek Belka

Acknowledgements xv

Notes on Contributors xvi

List of Abbreviations xxii

Introduction 1 Jan Monkiewicz

Part I General Issues

1 The Dynamics of the Safety Net in Insurance: Trends and Challenges 21 Marek Monkiewicz

2 Systemic Risk and the Insurance Industry: Principal Linkages and Dependencies 38 Martin Eling and David Pankoke

3 Insuring the Financial System against Insurers: A Macroprudential Framework 66 Aerdt Houben and Hanne van Voorden

4 Insurance and Macroprudential Regulation: Conceptual Issues 85 Marcelo Ramella and Sebastian von Dahlen

Part II Policy-Related Issues

5 Macroprudential Policy: Rationale and Challenges 103 Piotr J. Szpunar

6 Systemic Risk and Financial Stability in Insurance: Macroprudential Policy Concerns 136 Krzysztof Jajuga

vi Contents

7 How to Align Microprudential and Macroprudential Supervision in Insurance 153 Rodolfo Wehrhahn

8 Macroprudential Policies: What Toolkit for the Insurance Sector? 160 Rodolfo Wehrhahn and Nadège Jassaud

9 Central Banking, Macroprudential Supervision and Insurance 167 Donato Masciandaro and Alessio Volpicella

10 The Architecture of Macroprudential Supervision in the EU Regional Model 209 Andrew Mawdsley

Part III Global Issues

11 GSIIs and the Framework for Macroprudential Supervision: Strengthening GSIIs and Reducing the Systemic Risks They Pose 233 Paul Sharma

12 The Growing Confusion between Group Supervision and Macroprudential Surveillance in Insurance 250 Philippe Brahin

13 The Global Macroprudential Set-Up in Insurance: Who Is in Charge? 264 Sebastian von Dahlen and Marcelo Ramella

14 The Misuse of Macroprudential Regulations for Protectionist Purposes: A Real Danger? 280 Philipp Keller

Index 299

vii

List of Figures

1.1 Principal pillars of the insurance safety net 28 1.2 Guarantee schemes and the protection of policyholders 33 2.1 Key aspects in analysing systemic risks 40 3.1 The systemicness of insurance 68 3.2 Premium paid to life and non-life insurance 69 3.3 Distribution of household financial assets 70 3.4 Total assets under management: Europe 71 3.5 Systemic risks of banks and insurers 72 3.6 Asset reallocation Dutch insurers: equities 77 3.7 Exposures of Dutch insurers to GIIPS countries 77 4.1 Time-and-space population regularities: two examples 88 4.2 Insurance activities, population regularities and

financialisation 92 5.1 Eurozone GDP 104 5.2 Public debt to GDP in selected eurozone countries 104 5.3 US domestic credit to private sector 108 5.4 Global CDO issuance 110 5.5 Gross positions in the global CDS market 112 5.6 Euro area insurance companies and pension fund holdings

of securities other than shares 115 5.7 Total assets of euro area banks and insurance companies 116 7.1 The interplay between microprudential supervision,

macroprudential surveillance and monetary policy in supporting financial stability 154

9.1 Central banks as macro supervisors 196 9.2 Central banks as micro supervisors 199 9.3 Central bank independence 201 9.4 Central banks as macro and micro supervisors 203 9.5 Central banks as macro supervisors and their independence 204 10.1 ESRB structure 215 10.2 Macroprudential objectives and instruments 221 14.1 Procyclicality: types 1 and 2 288

viii

List of Tables

2.1 Classification of various business activities in insurance 45 2.2 Overview of possible macroprudential regulation

instruments at the level of individual institutions 52 3.1 Investment mix of the European insurance sector 71 7.1 Policy measures 155 8.1 Selected shocks with possible systemic risk implications 164 9.1 Central banking involvement in macro supervision,

micro supervision and central bank independence 200 10.1 European system of financial supervision 212 10.2 Institutional structures for macroprudential supervision 218 13.1 Institutions responsible for financial stability in selected

Asian countries 270

ix

Foreword

The development of a macroprudential policy framework is a chal-lenging task, because it is a part of significant policy redesign that could be compared to the emergence of modern macroeconomic policy in the 20th century. The Great Depression of the 1930s became a trigger for a revolution in thinking on the economy and macroeco-nomic policy. 1 The recent global financial crisis may have an equally significant impact on policymakers’ assessment of the financial system, including its pivotal role in the economy and the policies that affect the behaviour of the system as whole. This systemic, or macroprudential, approach marks a departure from the traditional focus on the role of individual financial institutions. The crisis has shown that the healthy individual firms may not necessarily mean that the system as a whole is inherently stable. Given that the development of a macropruden-tial policy is at an early stage, one can only make limited predictions about the potential effectiveness of the new policy and its operational framework.

Macroprudential policy is not a purely new idea. Well before the recent crisis, there were discussions and ideas about new systemic approaches to the financial sector, but such policies have never been fully devel-oped and operationalised. The first ever mention of the term “macro-prudential” can be found in the minutes of a Cook Committee 2 meeting in 1979. It subsequently appeared in documents prepared by the Bank for International Settlements (BIS) and its related committees. 3 The first IMF report that used the term “macroprudential” in the context of bank supervision was published in 1998. 4 , 5 While aspects of macroprudential policy have occasionally been discussed on a national and international level, a coherent framework has yet to emerge.

The recent financial crisis has underscored the need to develop a conceptual framework for macroprudential policy. The lessons from the recent crisis suggest that there has indeed been a gap in the public policy framework: although national authorities were using both microprudential and macroeconomic policy tools, they obviously failed to monitor and mitigate system-wide risks in the financial sector. This policy failure may be seen as one of the main causes of the finan-cial crisis. Developing an effective macroprudential policy framework has become a key policy challenge. It has also sparked debates among

x Foreword

policymakers and academics in lots of areas. Here, I would like to touch upon three such issues in macroprudential policymaking: (i) the need for a true system-wide approach ; (ii) the concept of systemic diver-sity ; and (iii) the practical challenges related to the financial system’s complexity .

System-wide approach needed

There seems to be a well-established definition of macroprudential poli-cies, which is currently used by different international bodies. 6 This definition stresses the need for a system-wide approach. However, in practice, data gaps 7 and conceptual challenges mean that the key focus in surveillance is still banking-centric. Although there is evidence of progress, we should not stop there: especially because we can expect that following the proliferation of macroprudential measures, regu-lated entities will modify their behaviour by shifting more costly activi-ties to less regulated areas (shadow banking) and innovate financial products (proper version). The macroprudential policymakers have to be prepared for these processes by strengthening their market surveil-lance abilities. But this is not enough. One has to develop measures to limit systemic risk in such areas. Again, the fact is that the most devel-oped thinking about operationalisation of the macroprudential poli-cies concerns the banking sector. This may even create an impression that there are separate sectoral macroprudential policies – in banking, insurance or securities markets. This is supported by the fact that the majority of regulations are still sectoral in nature and by the fact that supervision is still primarily sectoral. Nothing could be more wrong. It is true that financial institutions and markets differ, but lots of financial products and functions are substitutes or are complementary in creating long intermediation chains. A system-wide approach is needed to make the policies effective, given all the interactions within the financial sector as well as the interactions and feedback between the financial sector and the economy. A system-wide approach should be present in analysis, while macroprudential measures limiting risks should be both system-wide and sectoral to reflect their specificity. In order to stress the difference between a macroprudential, system-wide approach in monitoring (surveillance) and designing policies (regulation) and their sectoral enforcement (supervision), we should rethink the use of the term “macroprudential supervision”: “macroprudential policy” seems to better reflect this public policy concept.

Foreword xi

Seek systemic diversity

The advantages of diversification can be derived from modern portfolio theory as applied to individual portfolios or institutions. However, the more diversification is applied to all institutions in a financial system, the less diverse the financial system may become. A less diverse financial system may have more common exposures and may be more vulnerable to common shocks. Experiences from other scientific disciplines – such as maritime biology – prove that the system is most resilient when it is diver-sified, not when its parts are the strongest. 8 This has serious consequences for macroprudential policymaking. The basic dilemma is whether to allow specialised financial institutions to enter other areas of finance, which will lead to more stable revenues but also new risks (e.g. universal banks, Allfinanz) or is it better to reach diversity at the system level by having a larger number of more specialised, complementary and substitutable, firms (such as Glass–Steagall type diversity)? A good example of such practical dilemmas is insurance. Traditionally, insurance companies can act as a systemic “amortiser” for markets and from there to the financial system as a whole, as they are not procyclical and not subject to liquidity runs. However, recently there were some examples of insurance compa-nies entering bank-like areas and accepting liquidity risks, which resulted in bank-like runs on some insurance institutions in Singapore. 9 Another example of procyclical behaviours and structural risk contributions was the activity of the American International Group (AIG). These dilemmas concern regulations: the choice between establishing different rules of the game for different types of institutions to preserve systemic diversity, or aiming for a level playing field. The same can be found at the global level. In order to proliferate high standards and reduce regulatory arbitrage Basel Committee standards in banking are implemented globally and countries are assessed on whether they meet these standards. 10 However, this can contribute adversely to global stability by limiting diversity of reactions which play stabilising role for the whole system. These are diffi-cult conceptual and policy-related questions.

Complexity to be addressed

Financial systems became more and more complex. This tendency has important implications in relation to regulation and macropru-dential policy. Andrew Haldane 11 presented them nicely in 2012. In a complex environment, complexity in the responses to systemic risk

xii Foreword

may not be the best approach. Complex rules may lead to suboptimal policy responses, especially with short data series: for example, in a period where rapid financial innovations take place. In such situations, applying simpler rules may bring better results. However there is a catch: simple rules are the outcomes of experience. But how to establish them if macroprudential policy has not been used before or has only been applied to a limited extent? In such a situation we should rely on all available (worldwide) experiences – there is a need to exchange infor-mation, and to study the experience of other countries while actively assessing to what extent they are applicable in a local environment. The organising of such cooperation by international institutions – regional (ESRB, ECB) or global (IMF, BIS, FSB) is of key importance. Another important consequence is the need for macroprudential policymakers, and regulators generally, to hire and retain highly qualified staff to establish such rules – as this can affect the policy outcomes heavily. This will be challenging for countries’ authorities as these are precisely the types of people that market institutions, advisory institutions, as well as a growing number of international regulatory and supervisory bodies (such as the ECB) will seek to employ. However, in a complex world well-qualified, reliable staff with extensive experience can be the key to avoiding very costly systemic events.

Another issue related to complexity is whether policymakers should treat the growing complexity of an environment in which macropru-dential policy operates as a given or should they try to impose a limit on its level of complexity? The latter requires a measure of the complexity involved and solid grounds in order to work out where to establish the limit. Do we have them? Not necessary. There have been previous attempts to address the complexity within financial organisations by imposing systemic charges for complex systemic financial institutions (GSIBs, DSIBs), implementing structural measures (e.g. the Volcker rule, the Vickers and Liikanen reports’ proposals), as well as requiring prepa-ration of recovery and resolution plans. These measures create an incen-tive for the simplification of structures and business models. But, the complexity of interactions between organisations is more difficult to address, because of the opposing forces of shock absorption and shock diffusion in financial networks. On the one hand, linkages may act as channels to propagate shocks to the whole system, that is, they act as “shock transmitters”. On the other hand, through these linkages, shocks can be shared and absorbed by others, that is, financial linkages may act as “shock absorbers”. Increasing the degree (which measures the number of connections between nodes) of the interbank network generates an

Foreword xiii

M-shaped graph. 12 At low levels of connectivity, an increase in inter-connectedness raises the likelihood of contagion; at higher levels of connectivity, the resilience of the system improves, declines, and then improves again as the network reaches completeness. 13 Because current models do not offer practical guidance on identifying optimal targets for interconnectedness, the emphasis has been not on limiting excess complexity (interconnectedness), but on enhancing the resilience of the financial system. Only in some cases, the network analysis and market-based tools have been proposed as guides to calibrating macroprudential tools in order to mitigate systemic risks related to interconnectedness 14 and system complexity. But we have a long way to go.

The pre-crisis thinking about the role of central banks with regard to financial stability issues concentrated mostly on financial stability as a precondition for the efficient functioning of the monetary transmis-sion mechanism. The recent crisis made us to rethink the role of central banks in the area of financial stability. The revision of the previous posi-tion moved the mindset of central banks substantially – they adopted a more proactive stance in this area, going far beyond the traditional regulation and supervision activities. This change has been already widely accepted. However, the ways and means for implementation of this new consensus are not settled yet. In particular, how to combine the traditional tools of monetary policy with new sets of tools of macro-prudential policy and how to ensure segments of the financial sector (other than banking) are covered by the new responsibilities of central banks are still subjects of heated and prolonged debate. The latter factor is the reason why I am so glad to see this book taking its final shape and I welcome the new stage of discussion it will hopefully trigger, as I do hope it will bring me – and all central bankers – some clear and compre-hensive answers to the questions we face.

Marek Belka President of the National Bank of Poland

Notes

1 . Crockett, A. (2000). Marrying the Micro- and Macro-Prudential Dimensions of Financial Stability , Financial Stability Forum, Basel, 21 September 2000.

2 . The forerunner of the present Basel Committee on Banking Supervision. 3 . For example, the Euro-currency Standing Committee (the forerunner of the

present Committee on the Global Financial System). 4 . Toward a Framework for Financial Stability , IMF, 1998. 5 . Clement, P. (2010). “The term ‘macroprudential’: origins and evolution”. BIS

Quarterly Review , March 2010.

xiv Foreword

6 . Macroprudential Policy Tools and Frameworks . Update to G20 Finance Ministers and Central Bank Governors, 2011; Macroprudential Policy: An Organizing Framework , IMF, 2011; Macroprudential Instruments and Frameworks: A Stocktaking of Issues and Experiences , CGFS Papers No 38, 2011;

7 . The Financial Crisis and Information Gaps . Progress Report, Financial Stability Board and International Monetary Fund, 2010; Claessens, S. and Kodres, L. (2014). The Regulatory Responses to the Global Financial Crisis: Some Uncomfortable Questions , IMF Working Paper 14/46, 2014.

8 . Haldane, A.G. and May, R.M. (2011). “Systemic risk in banking ecosystems”. Nature , 20 January 2011, 451–455.

9 . Insurance and Financial Stability , IAIS, 2011. 10 . The Financial Sector Assessment Program After Ten Years: Experience and Reforms

for the Next Decade , IMF/World Bank, 2009. 11 . Haldane, A. G. (2012). The Dog and the Frisbee , speech, Jackson Hole Economic

Policy Symposium, 2012. 12 . Nier, E. et al. (2008). Network Models and Financial Stability , Bank of England

Working Paper 346. 13 . Cf. Allen, F. and Gale, D. (2000). Financial Contagion . 14 . Arregui, A. et al. (2013). Addressing Interconnectedness: Concepts and Prudential

Tools, IMF Working Paper 13/199.

xv

Acknowledgements

The Geneva Association’s Programme on regulation, supervision and legal issues in insurance (better known as PROGRES) focuses on The Geneva Association’s cooperation with the supervisory and regulatory authorities around the world and, in particular, with the International Association of Insurance Supervisors (IAIS). In recent years the programme has been led by Prof. Jan Monkiewicz.

Initiated by Patrick Liedtke – former Secretary General of The Geneva Association – and supported by The Geneva Association, this book focuses on recent developments in macroprudential surveillance and supervision policy. The Geneva Association welcomes the broad authorship on this topic, which gives a valuable insight into current discussions and opinions.

The Geneva Association thanks Prof. Jan Monkiewicz and Dr Marian Małecki for their invaluable work on this project. The opinions expressed in this book are the sole responsibility of the authors and do not neces-sarily represent the views of The Geneva Association.

The Geneva Association disclaims all liability and responsibility for materials provided by any third parties.

* * * Inspiration for this book emerged from discussions held by the

editors with Patrick Liedtke, the former Secretary General of the Geneva Association for the Study of Insurance Economics. Soon after the global financial crisis had broken he realised the importance of finan-cial stability and systemic risk for future regulatory approaches in the insurance industry. His support and advice was invaluable in the initial phase of this book. Our appreciation also goes to Aerdt Houben (Dutch National Bank) for his advice on the selection process of the contrib-uting authors. In formatting the final draft we benefited substantially from comments provided by Dr Nikolaus von Bomhard, Chairman of the Geneva Association in 2010–2013, and the Chairman of the Board of Management of Munich Re. Finally, we would like to extend our thanks to Professor Marek Belka, Governor of the National Bank of Poland and a member of the Steering Committee of the European Systemic Risk Board, for the stimulating observations and thought-provoking comments in his Foreword to this book.

xvi

Notes on Contributors

Marek Belka is Professor of Economics and President of the National Bank of Poland. His academic career started in 1972 in the Institute of Economics, Łódź University. He was also a research fellow at Columbia University, the University of Chicago and the London School of Economics. In 1994 he was awarded the title of Full Professor of Economics. In the 1990s he served as an advisor to the Polish Government and the President of Poland. In 1997 and from 2004 to 2005 he served as Deputy Prime Minister and Minister of Finance and in 2004 he became Prime Minister of Poland. Professor Belka has addi-tionally held many high-ranking international positions: Chairman of the Council for International Coordination for Iraq, Director of Economic Policy in the Iraqi Coalition Provisional Authority, Executive Secretary of the UN Economic Commission for Europe, and Director of the European Department at the International Monetary Fund. In 2010 Professor Belka became the President of the National Bank of Poland. He is also currently a member of the Steering Committee of the European Systemic Risk Board (ESRB), a member of the Central Bank Governance Group at the Bank for International Settlements (BIS) in Basel and a Chairman of the World Bank/IMF Development Committee. Since 2012 he has been a Chairman of the Steering Committee of the Vienna 2.0 Initiative.

Philippe Brahin is Head of Governmental Affairs & Sustainability at Swiss Re. Philippe is responsible for the global monitoring of regula-tory developments and the engagement of Swiss Re in sustainability risk management initiatives. He is Swiss Re’s delegate in the Institute of International Finance, The Geneva Association and the European Financial Roundtable. He is also the vice-chairman of the Economic & Finance Committee of Insurance Europe. Prior to joining Swiss Re, Philippe was Deputy Director for International Affairs at the French Insurance Association (FFSA) and he also worked for the California Department of Insurance.

Martin Eling is Professor of Insurance Management and Director of the Institute of Insurance Economics at the University of St. Gallen, Switzerland. He received his doctorate from the University of Münster,

Notes on Contributors xvii

Germany and his habilitation from the University of St. Gallen. In 2008 he was Visiting Professor at the University of Wisconsin-Madison. From 2009 to 2011, he was Professor for Insurance at the University of Ulm, Germany. His research interests include risk management, regula-tion, asset liability management and empirical aspects of finance and insurance.

Aerdt Houben is Director of Financial Stability Division at De Nederlandsche Bank (DNB), the Dutch central bank and prudential supervisor. Previously, he worked at the IMF. He is a member of the BIS Committee on the Global Financial System, the FSB Standing Committee on Analytical Vulnerabilities, the ESRB Advisory Technical Committee and the ECB Financial Stability Committee. He was a member of the Basel Committee on Banking Supervision and the International Organisation of Pension Supervisors and has been active in the EU supervisory committee CEIOPS. He holds a PhD in Monetary Economics and has published broadly on financial issues.

Krzysztof Jajuga is Professor at the Department of Financial Investments and Risk Management at Wroclaw University of Economics. He is also director of Bachelor Studies in Finance and Master Studies in Finance, editor-in-chief of JCR journal Argumenta Oeconomica and member of the Editorial Board of Journal of Risk Management in Financial Institutions. He publishes intensively in the area of finance, risk management and quan-titative methods. In his research interests he focuses on financial markets and instruments, portfolio management, risk management, economet-rics, personal finance, multivariate statistical analysis and real estate. He was Visiting Professor at universities in the United States, China, Germany, France, the United Kingdom, Belgium, the Netherlands, Ireland and Sweden. He was a member of the Scientific Council of the National Bank of Poland and a member of the Supervisory Board of Warsaw Stock Exchange.

Nadège Jassaud is Senior Economist in the Monetary and Capital Markets Department (Financial Crisis Division) at the International Monetary Fund (IMF). She has also co-authored an IMF Staff Discussion Note on bail-in and contributed to an IMF board paper on macropru-dential policies. Prior to working at the IMF, she was Deputy Head of the Financial Stability Division at Bank of France. She obtained her master’s in Political Finance from Sciences Po.

Philipp Keller is a partner at Deloitte. He has a doctorate in mathe-matics from ETH Zurich. After actuarial and senior positions at Swiss Re

xviii Notes on Contributors

and FINMA he now heads the Financial Risk Management Department of Deloitte. Keller is also a Monetary and Capital Market expert for the IMF, advising the fund on systemic risk and regulation.

Donato Masciandaro is Professor and Chair in Economics of Financial Regulation, Bocconi University, Milan. Since November 2013 he has been Head of the Department of Economics (second mandate). He is also a Director of the Baffi Centre on International Markets, Money and Regulation. He is member of the Management Board and Honorary Treasurer of the SUERF. He served as Visiting Scholar at the IMF Institute (International Monetary Fund), as well as Consultant at the Inter-American Development Bank and at the United Nations. He is Associate Editor of the Journal of Financial Stability.

Andrew Mawdsley is Head of Financial Stability and Information at EIOPA. He is responsible for EIOPA’s financial stability work, along with crisis prevention and management in the insurance sector. Prior to joining EIOPA in 2011 he was Head of Special Projects at the Central Bank of Ireland where he led the Bank’s work on legislation for bank resolution and was also involved in bank and credit union restruc-turing. He also spent 10 years as a prudential supervisor, having been Deputy Head of Banking Supervision and, subsequently, Deputy Head of Insurance Supervision at the Central Bank of Ireland. Earlier in his career he spent more than a decade as an economist in both the public and private sectors, working on economic forecasting, monetary policy strategy and financial stability. He holds an MA in Economics from University College Dublin and an MSc in Financial Management from the University of London.

Jan Monkiewicz is Professor of Financial Management at Warsaw University of Technology and a head of its Risk and Finance Department. From 1994 to 1996 and 2002 to 2006 he occupied senior positions within the Polish government. In addition, from 2002 to 2006 he was a member of the Executive Board of International Association of Insurance Supervisors. Between 2007 and 2013, he was associated with The Geneva Association as its Vice Secretary General and a member of the Editorial Board of The Geneva Papers on Risk and Insurance. His principal research interests include risk and insurance, finan-cial stability, financial markets, financial regulation, and the intel-lectual property rights. He has published several books and articles both in Poland and abroad. He is the co-editor (with Patrick Liedtke) of The Future of Insurance Regulation and Supervision (2011). In 2012 he co-authored (with Patrick Liedtke) a report titled “The Institutional

Notes on Contributors xix

Framework for Global Insurance Regulation and Supervision: The Changing Landscape”, published by The Geneva Association. He is also the author of a number of textbooks on insurance, including Ubezpieczenia. Podręcznik akademicki [Insurance: An academic textbook] (co-author Jerzy Handschke, 2010). Since 2011 he has been an advisor to the President of the National Bank of Poland.

Marek Monkiewicz is Lecturer at the Management Faculty at Warsaw University, in Insurance and Capital Markets Department, Poland. He is also Head of the Planning and Analysis Department and advisor to the executive Board on International Cooperation at the Polish Insurance GuaranteeFund. His professional experience includes Brokerage House Bain Hogg, London, UK, Daewoo General Insurance Company in Warsaw and the Polish Prime Minister’s Office. He is the author and co-author of a number of articles on insurance guarantee schemes and MTPL insurance. He has also authored several books including Insurance Guarantee Schemes on World Markets and Safety of the EU Insurance Market and Guarantee Schemes of Insurance Protection.

David Pankoke received a BSc in Management from the University of Mannheim, Germany and an MA in Banking and Finance from the University of St. Gallen. Switzerland. In addition, he studied at Peking University, China and at the University of Witwatersrand, South Africa. Since 2012 he has been a doctoral student at the Institute of Insurance Economics, University of St. Gallen. His research interests include insur-ance regulation and systemic risk in the financial sector.

Marcelo Ramella is Deputy Director of Policy and Research in the Policy, Legal Services and Enforcement Department, at the Bermuda Monetary Authority, responsible for research matters concerning insurance, banking, investments, trusts and central banking. He is also Chartered Public Accountant in Buenos Aires, Argentina. Prior to joining the BMA Marcelo held research positions in the United Kingdom with the Home Office and the London School of Economics and Political Science (LSE). He is also involved in the work of the Financial Stability Board and the International Association of Insurance Supervisors. He has dedicated a wealth of attention to following global developments in international insurance and reinsurance markets, in particular issues that relate to innovative practices within reinsurance. He received his PhD in Social Psychology from the LSE.

Paul Sharma is Managing Director at the global advisory firm Alvarez & Marsal, and was formerly Deputy Head of the UK’s Prudential

xx Notes on Contributors

Regulation Authority. He was a member of the Basel Committee of Banking Supervision (BCBS) and the Executive Board of the International Association of Insurance Supervisors (IAIS), and the UK’s alternate member of the Boards of Supervisors of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Systemic Risk Board. He chaired the key BCBS and IAIS finan-cial stability work responsible for identifying global systemically impor-tant banks and insurers.

Piotr Jacek Szpunar is Advisor to the President of the National Bank of Poland. He graduated in Philosophy at the Academy of Catholic Theology in Warsaw, continuing his education at Otto-Friedrich University in Bamberg, Germany and the National School of Public Administration in Warsaw. He obtained his doctoral degree in Economics at the Warsaw School of Economics in 1999. He has held several positions in the National Bank of Poland in the areas of monetary policy and financial stability. He lectures in Economics and is the author of Monetary Policy: Goals and Conditions of Efficiency and many papers on exchange rate, monetary policy and credit growth for the BIS and the IMF.

Hanne van Voorden is a supervisor on national insurance groups at De Nederlandsche Bank (DNB). Previously she worked at the Financial Stability Division. Her responsibilities included the implementation of national policy for systemically important financial institutions and macroprudential analysis of the insurance sector. She was also a member of the IAIS Financial Stability Committee. She graduated in Economics.

Alessio Volpicella is a junior fellow at the Baffi Centre on International Markets, Money and Regulation.

Dr. Sebastian von Dahlen is Economic Counsellor at the IAIS, which is hosted by the BIS in Basel, Switzerland. His responsibilities include macroprudential surveillance, natural catastrophes, reinsurance and other forms of risk transfer. With specific relation to research on macro-prudential surveillance and reinsurance matters, for the past eight years Sebastian has been actively engaged in a professional collaboration with Marcelo Ramella, his co-author in this book, jointly authoring a wide range of publications. Prior to joining the IAIS in 2007, Sebastian held increasing roles with the Federal Financial Supervisory Authority (BaFin) and worked in the insurance sector (Colonia, New York City) and in consultancy (McKinsey & Company). His recent publications include work on reinsurance, disasters, analytical tools and macroeconomic effects on low- and high-income economies.

Notes on Contributors xxi

Rodolfo Wehrhahn is the founder of Wehrhahn & Wehrhahn Consulting LLC, based in Florida USA, providing advice on banking, insurance, reinsurance, pensions and securities. He has held positions at the International Monetary Fund and at the World Bank advising on insurance and pension matters to governments. He has represented the IMF on several committees. He was previously President of FIDES, the Federation of Insurance Associations of Latin America, Spain, Portugal, and the USA representing the American Council of Life Insurers. He holds a PhD, a master’s in Mathematics and a master’s in Physics from the University of Hamburg, Germany.

xxii

List of Abbreviations

ABCP Asset-Backed Commercial Paper ABS Asset-Backed Security AFM Autoriteit Financiële Markten AIG American International Group ART Alternative Risk Transfer ASC Advisory Scientific Committee ATC Advisory Technical Committee BCBS Basel Committee on Banking Supervision BCR Basic Capital Requirement BF bureaucratic dominance of the central bank as over

powerful agency BIS Bank for International Settlements BMA Bermuda Monetary Authority BoE Bank of England CAR Capital Adequacy Ratio CBI Central Bank Independence CBIMS Central Bank Involvement in Insurance

Macrosupervision CBSS Central Bank Supervisor Share CCA Contingent Claims Analysis CCC Central Counterparty Clearing CCP Central Counterparty Clearing House CDO Collateralised Debt Obligation CDS Credit Default Swap CEIOPS Committee of European Insurance and Occupational

Pensions Supervisors CGFS Committee on the Global Financial System CMG Crisis Management Group ComFrame Common Framework for the Supervision of

Internationally Active Insurance Groups CPI Consumer Price Index CRD IV Capital Requirement Directive IV (Directive 2013/36/EU) CRO Forum Chief Risk Officers Forum CRR Capital Requirement Regulation (Regulation 575/2013/EU) DSII Domestic Systemically Important Insurers DNB De Nederlandsche Bank

List of Abbreviations xxiii

DSGE Dynamic Stochastic General Equilibrium DSIB Domestic Systemically Important Bank DSIFI Domestic SIFI DtI Debt-to-Income EBA European Banking Authority EC European Commission ECB European Central Bank EFC Economic and Financial Committee EIOPA European Insurance and Occupational Pensions Authority ESA European Supervisory Authorities ESFS European System of Financial Supervision ESMA European Securities Markets Authority ESRB European Systemic Risk Board EU European Union EVT Extreme Value Theory FCA Financial Conduct Authority FCP Financial Policy Committee FED Federal Reserve System FMA Oestreichische Finanzmarkaufsicht FSA Financial Services Authority FSB Financial Stability Board FSHH Financial Supervision Herfindahl–Hirschman FSOC Financial Stability Oversight Council FX Foreign Exchange G20 The Group of Twenty, major advanced and emerging

economies: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, The United Kingdom, the United States of America, Vietnam, Turkey and also the European Union, represented by the rotating Council presidency and the European Central Bank

GDP Gross Domestic Product GFSR Global Financial Stability Report GIIPS Greece, Ireland, Italy, Portugal, Spain GMT Grilli-Masciandaro-Tabellini GPD Generalized Pareto Distribution GSEs Government-Sponsored Enterprises GSIB Global Systemically Important Bank GSIFIs Global Systemically Important Financial Institution GSII Global Systemically Important Insurer GSII Global Systemically Important Institutions

xxiv List of Abbreviations

HLA Higher Loss Absorbency IAIG Internationally Active Insurance Group IAIS International Association of Insurance Supervisors IBNR Incurred But Not Reported ICP Insurance Core Principle (of the IAIS) ICS Insurance Capital Standard IFRS International Financial Reporting Standards IIF International Institute of Finance IMF International Monetary Fund IOSCO International Organisation of Securities Commissions IRB Internal Ratings-Based IRIS Insurance Regulatory Information System KAs Key Attributes (of effective resolution regimes for financial

institutions) LCR Liquidity Coverage Ratio LGD Loss Given Default LSE London School of Economics and Political Science LTI Loan-to-Income/debt (service)-to-income requirements LtV Loan-to-Value MBS Mortgage Backed Securities MES Marginal Expected Shortfall MPSCC Macroprudential Policy and Surveillance Subcommittee NAIC National Association of Insurance Commissioners NBB National Bank of Belgium NBNI SIFI Non-Bank, Non-Insurance SIFI NCA National Competent Authorities NSFR Net Stable Funding Ratio NTNI Non-Traditional Non-Insurance activity OECD Organisation for Economic Cooperation and Development OeNB Oestreichische Nationalbank ORSA Own Risk and Solvency Assessment OTC Over-the-Counter P&C Property and Casualty PD Probability of Default PF Policy Failures of the central bank as outside regulator PRA Prudential Regulation Authority RTG Reinsurance Transparency Group (of the IAIS) RWA Risk-Weighted Assets SC Steering Committee SIB (Bank) Systemically Important Financial Institution SIFI Systemically Important Financial Institution

List of Abbreviations xxv

SII Systemically Important InsurerSII Systemically Important Institutions SPE Special Purpose Entity SPV Special Purpose Vehicles SREP Supervisory Review and Evaluation Process SRMP Systemic Risk Management Plan SSM Single Supervisory Mechanism SST Swiss Solvency Test TFP Total Factor Productivity TPL Third Party Liability UK United Kingdom UN United Nations US United States of America USD US Dollar VaR Value-at-Risk WB World Bank MMoU Multilateral Memorandum of Understanding