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Financial Stability and Insurance Markets

On 3 September 2019, the Florence School of Banking and Finance held an online seminar on the topic of ‘Financial Stability and Insurance Markets’, featuring as lead speakers Francesco Mazzaferro (Head of the Secretariat at the European Systemic Risk Board – ESRB) and Dimitris Zafeiris (Head of the Risks and Financial Stability Department at the European Insurance and Occupational Pensions Authority – EIOPA).

As is well established, financial institutions can create or amplify systemic risk. The online seminar opened with an overview of how insurance can contribute to systemic risk, as an amplifier or transmitter of risk. The speakers highlighted that two types of systemic risk can be distinguished: contagion (both direct and indirect) and systematic withdrawal or failure of insurance services, which could lead to a systemic disruption.

On the basis of this evaluation, speakers argued for the need for a comprehensive regulatory framework, in which a macroprudential approach should address systemic risk and supplement the microprudential supervisory framework for insurers. Such a discussion is particularly important since its principle should guide the review of the legislation that guides insurance at EU level (the Solvency II directive), which is going to happen in the upcoming years.

The speakers focused then on two specific issues for the stability of the insurance sector, namely the need for a recovery and resolution regime, and for insurance guarantee schemes, which is a crucial factor in reducing the concerns of consumers. The online seminar also highlighted that the lack of harmonisation in the field of recovery and resolution of insurers makes cross-border cooperation and coordination more difficult. For the orderly resolution of insurers, a harmonised and comprehensive recovery and resolution framework is essential to better protecting policyholders as well as maintaining financial stability.

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