The International Association of Insurance Supervisors (IAIS) released a report yesterday addressing the role of insurance securization as a building block of alternative insurance risk transfer arrangements (ART). The paper identifies and discusses the key recent developments in the sector, focusing specifically on the regulatory, supervisory and operational dimensions.
According to the report, as part of revising and updating all of the IAIS standards and guidance papers on reinsurance, the association is planning to release guidance to the regulatory and supervisory community related to insurance securitization. This is in progress and is expected to be finalized in 2011. This paper builds on prior IAIS work on the matter, specifically the 2003 Issues Paper on Non-Life Insurance Securitization, the 2003 Issues Paper on Life Securitization, and the 2006, 2007 and 2008 editions of the Global Reinsurance Market Report.
The latest report is divided into four sections. The first offers an overview of the current insurance securitization landscape, briefly describing the main deals, and how they operate in practice.
The second section presents and discusses empirical data on the extent to which insurance securitizations have been utilized in past years, looking at the emerging trends and their relation to financial stability.
The third focuses on current developments in regulatory frameworks worldwide that are related to insurance securitizations.
The fourth section examines examples of insurance securitization arrangements that are put under stress. The report places special attention to the impact that the current crisis has had on these instruments, and highlights some of the lessons that could be learned by the regulatory and supervisory community.
The IAIS said in the report that in the current financial crisis much attention has been dedicated to the relationship between securitized risk transfer and financial stability.
For instance, RMBS, especially as related to subprime mortgages, have been at the center of a broad debate that extends from the rising interconnectedness of the different financial sectors, to the transparency, or lack thereof, of the instruments utilized to carry out the risk transfer. This has resulted, according to IAIS, in the securitization market being put under renewed scrutiny by governments, regulators, securities issuers, investors and other parties affected by them.
However, the IAIS said that insurance securitization has escaped this trend.