This is an important milestone – one that takes us further towards embedding the right idea of increased resilience for those few insurers that have the capacity to impact the global financial system. I look forward to your continued support as the IAIS builds on this progress to put into practice the overall package of requirements for systemic insurers by 2019. And we will need your support as we further develop, over time, an International Capital Standard to apply to all internationally active insurance groups. Our aim is nothing less than a standard which embodies the principles which underpin ICAS and Solvency II. Conclusion The ideas I’ve described today are vital to preserving the positive role of insurance in the financial system and the real economy. 6  BIS central bankers’ speeches  These ideas – tailored capital standards that promote a level playing field; a framework to hold the right people to account; and global standards for globally systemic insurers – are needed now in practice. The Bank knows that as our reforms are implemented and as your business models evolve we need a regulatory approach that is regularly reviewed, adjusted if necessary; and that takes account of evolving financial conditions, product innovation and changing markets. Robust interaction with the industry is essential to ensuring the right ideas can be put into action now, and for the future.
That sorry experience highlights the need to understand all the activities in which insurers are engaged, including on occasion substantial business beyond the boundaries of traditional insurance. Regulators have grouped those activities as “non-traditional” and “non-insurance” – including business involving extensive use of market instruments, like derivatives, and instruments that engage in substantial maturity transformation. Where this type of business is carried out in scale or across borders, risks to the system can be substantial. The crisis also showed how particular insurance markets can affect systemic stability. BIS central bankers’ speeches  5  The Monolines demonstrated how sub-sectors that are excessively concentrated or undercapitalised can amplify shocks. The failure of multiple insurance companies in response to economic stress can disrupt the provision of critical economic functions. It can also suddenly transfer risks to other parts of the financial system that may be ill-equipped to manage them; or shift assets around in a way that can amplify and spread distress. As I said previously, the insurance sector is systemic in a positive way. Insurance companies have different risk bearing capacities than many other financial institutions. They play a stabilising role by deploying funds over a longer time horizons, in a manner less vulnerable to sudden outflows. The resilience of large insurers is therefore important to safeguard that positive contribution to the global economy. The starting point for the application of global standards has been the identification of systemically-important insurers.