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AAA Task Force Posts Systemic Resolution Paper

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Insurance industry systemic risk should be regulated at the federal level, a team of actuaries says.

The Financial Regulatory Reform Task Force at the American Academy of Actuaries, Washington, come to that conclusion in a report prepared to tell policymakers how task force members view regulation of insurance company risks that might be big enough to threaten the stability of the financial system.

“The task force supports the establishment of a federally based systemic risk regulator,” the actuaries write in their report. “The roles and responsibilities of the SRR should be consistent for all sectors of the financial services industry.”

U.S. insurers face both insurance risk and capital markets risk, the actuaries write.

“While the insurance industry did not generate systemic risk during the latest crisis, the task force recognizes the importance of a system that would monitor any development of insurance-related risk on a nationwide basis,” the actuaries write.

Monitoring insurers at a federal level makes sense, because insurance companies can be affiliated with many different types of domestic and non-U.S. financial services companies, the actuaries write.

Company risks are changing rapidly, in part because the insurance products offered are changing rapidly, the actuaries add.

The system risk regulator should look at an insurance company’s risk-management processes, and also at the decision-making processes used to apply the risk-management processes, the actuaries write.

To hold down expenses and avoid creating unnecessary bureaucracy, the federal system risk regulator should work with state insurance regulators whenever the law, funding levels and staff levels make that possible, the actuaries write.


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