IAIS: Insurers Are Not Banks

“Widespread distribution of financial products that contain a minimum guarantee” could increase the risk of insurers crashing the financial system, according to the International Association of Insurance Supervisors.

The IAIS, Basel, Switzerland, a group for insurance regulators from around the world, has published the comment on financial products with guarantees in a position statement on financial stability issues.

Policymakers around the world have talked about developing new rules for insurers, banks and other financial services companies, in an effort to try to prevent the kind of financial-system-threatening risk created by the recent turmoil at American International Group Inc., New York (NYSE:AIG).

Insurance regulators and others have been quick to note that AIG ran into trouble because of problems in its credit swaps business and other investment banking operations, not because of problems in its insurance operations.

Even serious problems at insurers rarely cause true systemic risk, because “the financial distress of an insurer usually plays out over a long time horizon,” the IAIS says in its position statement. “That is, assets of the insurer do not need to be liquidated until claims or benefits under the policies need to be paid, and this will not occur until months or even years in the future.”