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International Monetary Fund. Monetary and Capital Markets Department
This note provides an update and assessment of developments in insurance supervision since 2014. It is part of the 2020 Financial Sector Assessment Program (FSAP) for the Hong Kong SAR (HKSAR) and draws on discussions there from September 10 to 24, 2019. It has not been updated for the impact of recent global events associated with the COVID-19 pandemic. The insurance sector is large, especially long-term (life) insurance, highly international and has been growing steadily. The long-term market is amongst the world’s largest, particularly by penetration (premiums to GDP). Growth has been supported by the popularity of savings products, including sales of policies to Mainland Chinese visitors (MCVs), although these have declined from their peak. The general insurance sector, though comprising many more companies, is relatively small and spread over many lines. The authorities have identified scope for growth in protection policies as well as opportunities for captive and specialty lines related to China’s Belt and Road Initiative. Tax incentives have supported the recent successful introduction of new annuity and health insurance products. Although foreign-owned companies account for a large share of business, the HKSAR is the home of three major domestic groups operating internationally.
Jose Torres
Over the last two decades, the Peruvian government has made great efforts to improve access to health care by significantly augmenting the coverage of the non-contributory public health care system Seguro Integral de Salud (SIS). This expansion has a positive impact on welfare and public health indicators, as it limits the risk of catastrophic health-related costs for previously uninsured individuals and allows for the appropriate treatment of illnesses. However, it also entails some unintended consequences for informality, tax revenues, and GDP, since a few formal agents are paying for a service that the majority of (informal) agents receive for free. In this paper, we use a general equilibrium model calibrated for Peru to simulate the expansion of SIS to quantify the unintended effects. We find that overall welfare increases, but informality rises by 2.7 percent, while tax revenues and output decrease by roughly 0.1 percent. Given the extent of the expansion in eligibility, the economic relevance of these results seems negligible. However, this occurs because the expansion of coverage was mostly funded by reducing the spending per-insured person. In fact, we find larger costs if public spending is increased to improve the quality of service given universal coverage.
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note provides a summary of the review of systemic risk oversight arrangements and macroprudential policy issues in Canada. The paper discusses the existing systemic risk oversight arrangements and potential challenges, and then presents steps that can be taken to modernize the framework to ensure its effectiveness going forward. The paper focuses on systemic risk surveillance, including the current approaches and existing challenges such as data gaps and coordination. It also covers macroprudential policy issues, including the toolkit, the current policy stance and overall policy effectiveness. The review recommends that steps can be taken to improve the current system with a more formalized arrangement for systemic risk oversight. A single body in charge of systemic risk oversight would be the first-best option. Over time, the authorities should review whether systemic risk oversight under the Heads of Agencies Committee leadership with no statutory mandate is adequate. Macroprudential policy at the federal level has been effective; however, better coordination is essential given multiple provincial authorities’ ownership of prudential tools.
Aliona Cebotari and Karim Youssef
Natural disasters are a source of economic risks in many countries, especially in smaller and lower-income states, and ex-ante preparedness is needed to manage the risks. The paper discusses sovereign experience with disaster insurance as a key instrument to mitigate the risks; proposes ways to judge the adequacy of insurance; and considers ways to enhance its use by vulnerable countries. The paper especially aims to inform policy decisions on disaster