A new report from the Organization for Economic Cooperation and Development on the insurance sector and the financial crisis suggests changes to the supervision of the sector.

The report finds that the insurance sector did have a role in creating the crisis, by insuring complex structured products, which helped to prop up their credit ratings. This enabled wide distribution of these products, many of which later failed.

That said, it also finds that traditional insurance businesses, “arguably helped to provide a stabilizing influence in light of [their] longer-term investment horizon and conservative investment approach.”

As well, the report notes that the sector’s exposure to so-called toxic assets “does not appear to have been significant in most OECD countries on the basis of the limited data that has become available.” As of January, it says, insurers worldwide have reported write-downs and credit losses of US$261 billion, compared with US$1.23 trillion in the banking sector. And, more than half of the insurers’ total is accounted for by just four firms.

“In general, the traditional life and general insurance sectors have largely been bystanders in the crisis, and have been impacted by its knock-on effects, such as the fall in equity markets, declines in interest rates, economic slowdown and decline in credit quality, and, in some cases, counterparty exposures to failed financial institutions,” it concludes.

Still, despite the relatively modest impact on the sector, the report makes a series of recommendations including:

• strengthened ongoing surveillance of the insurance sector, cross-border supervision and information exchange;

• greater consideration of macroeconomic linkages and macro-prudential risks in insurance sector policymaking, regulation and supervision;

• encouraging convergence to a common regulatory framework for large, global insurers;

• ensuring adequate supervision of complex financial conglomerates;

• consideraton of how to deal with firms considered “to big to fail”;

• ensuring sufficient resolution authority for failed firms;

• providing transparency in policymaking;

• promoting financial literacy; and

• demanding tougher corporate governance standards for the sector.

IE