Front Matter
Author:
International Monetary Fund. Monetary and Capital Markets Department
Search for other papers by International Monetary Fund. Monetary and Capital Markets Department in
Current site
Google Scholar Close
Language:
English
Keywords:
GFSR; fixed income; financial condition; market participant; cost of capital; market assets; market downturn; market volatility; treasury note
Download PDF (453.3 KB)

Abstract

This paper focuses on risk transfer and discusses the insurance sector, particularly life insurers. It expands on issues raised in previous Global Financial Stability Reports by asking whether financial stability has benefited or could benefit from insurers’ broader participation in credit markets, including credit derivatives. The paper assesses the impact on financial stability of life insurers’ investment behavior and risk management in the largest mature markets. It highlights that the policy implications differ from market to market, and may offer useful lessons to emerging market countries with developing capital markets.

Selected Topic From the IMF’s Global Financial Stability Report

Risk Transfer and the Insurance Industry

Principal Contributors:

Todd Groome Yoon Sook Kim William Lee Kazunari Ohashi Calvin Schnure Rupert Thome

© 2004 International Monetary Fund

This paper was first published as Chapter III of the April 2004 Global Financial Stability Report (GFSR), a semiannual publication that assesses global financial market developments with the view to identifying potential systemic weaknesses. The paper is the first in a series on the financial stability implications of the reallocation and transfer of risks to a variety of nonbank institutions, followed by the chapter, “Risk Management and the Pension Fund Industry,” in the September 2004 GFSR, and a forthcoming chapter on the fund management industry and the household sector in general in the March 2005 GFSR. Those two chapters are also being issued as separate papers.

The April 2004 GFSR was prepared by the International Capital Markets Department (ICM), under the direction of the Counsellor and Director, Gerd Häusler. It was managed by an Editorial Committee comprising Hung Q. Tran (Chairman), W. Todd Groome, Donald J. Mathieson, and David J. Ordoobadi. This paper was written by ICM’s Financial Market Stability Division, including contributions from Toni Gravelle, Todd Groome, François Haas, Oksana Khadarina, Yoon Sook Kim, William Lee, Kazunari Ohashi, Calvin Schnure, and Rupert Thorne. We are also very grateful for an additional contribution from Nigel Davies of the IMF’s Monetary and Financial Systems Department. Jane Harris provided expert word processing assistance. Jeff Hayden of the External Relations Department edited the manuscript and coordinated production of the publication.

This paper draws, in part, on a series of informal discussions with commercial and investment banks, securities firms, insurance companies, and credit rating agencies in France, Germany, Hong Kong SAR, Japan, Singapore, Switzerland, the United Kingdom, and the United States. The report reflects information available up to March 8.

The report has benefited from comments and suggestions from staff in other IMF departments, as well as from Executive Directors following their discussions of the Global Financial Stability Report on March 26, 2004. However, the analysis and policy considerations are those of the contributing staff and should not be attributed to the Executive Directors, their national authorities, or the IMF.

  • Collapse
  • Expand
Cover Risk Transfer and the insurance industry
Risk Transfer and the insurance industry
ISBN:
9781451939323
ISSN:
1729-701X
Publication Date:
21 Oct 2004
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781451939323.082
Pages:
35

  • Ahearne, Alan, William Griever, and Frank Warnock, forthcoming, “Information Costs and Home Bias: An Analysis of U.S. Holdings of Foreign Equities,” Journal of International Economics.

    • Search Google Scholar
    • Export Citation

  • Bank for International Settlements, 2003, “Trends in Risk Integration and Aggregation,” The Joint Forum, Basel Committee on Bank Supervision (Basel, August).

    • Search Google Scholar
    • Export Citation

  • British Bankers’ Association (BBA), 2002, Credit Derivatives Report 2001/2002 (London).

  • Briys, Eric, and François de Varenne, 1995, “On the Risk of Life Insurance Liabilities: Debunking Some Common Pitfalls,” Wharton Financial Institutions Center Working Paper No. 96–29 (Philadelphia: The Wharton School, University of Pennsylvania).

    • Search Google Scholar
    • Export Citation

  • Committee on the Global Financial System (CGFS), 2003, “Credit Risk Transfer,” Bank for International Settlements (Basel, January).

  • Das, Udaibir S., Nigel Davies, and Richard Podpiera, 2003, “Insurance and Issues in Financial Soundness,” IMF Working Paper No. 03/138 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

  • Financial Services Authority, 2002, “Cross-Sector Risk Transfers,” Discussion Paper (London: May).

  • FitchRatings, 2003, “Global Credit Derivatives: A Qualified Success,” Fitch Ratings Special Report (September).

  • FitchRatings, 2004, “Securitization and Banks: A Reiteration of Fitch’s View of Securitization’s Effect on Bank Ratings in the New Context of Regulatory Capital and Accounting Reform” (February).

    • Search Google Scholar
    • Export Citation

  • Fukao, Mitsuhiro, 2002, “Barriers to Financial Restructuring: Japanese Banking and Life-insurance Industries” (unpublished; Tokyo: Keio University, February).

    • Search Google Scholar
    • Export Citation

  • Hall, Keith, and Erin Stuart, 2003, “Credit Risk Transfer Markets: An Australian Perspective,” Reserve Bank of Australia Bulletin (Sydney: Reserve Bank of Australia, May).

    • Search Google Scholar
    • Export Citation

  • Hartmann, Philip, Angela Maddaloni, and Simone Manganelli, 2003, “The Euro Area Financial System: Structure, Integration and Policy Initiatives,” ECB Working Paper No. 230 (Frankfurt: European Central Bank).

    • Search Google Scholar
    • Export Citation

  • Häusler, Gerd, 2004, “The Insurance Industry, Systemic Financial Stability, and Fair Value Accounting,” The Geneva Papers on Risk and Insurance, Vol. 29, No. 1 (January), pp. 63–70.

    • Search Google Scholar
    • Export Citation

  • Ibbotson Associates, 2003, Stocks, Bonds, Bills, and Inflation 2003 Yearbook (Chicago).

  • International Association of Insurance Supervisors, 1999, Supervisory Standard on Asset Management by Insurance Companies (Basel, December).

    • Search Google Scholar
    • Export Citation

  • International Association of Insurance Supervisors, 2003, Credit Risk Transfer Between Insurance, Banking and Other Financial Sectors (Basel, March).

    • Search Google Scholar
    • Export Citation

  • IMF, 2002a, “How Effectively Is the Market for Credit Risk Transfer Vehicles Functioning?,” Global Financial Stability Report; World Economic and Financial Surveys (Washington: International Monetary Fund, March), pp. 36–47.

    • Search Google Scholar
    • Export Citation

  • IMF, 2002b, “The Financial Market Activities of Insurance and Reinsurance Companies,” Global Financial Stability Report, World Economic and Financial Surveys (Washington: International Monetary Fund, June), pp. 30–47.

    • Search Google Scholar
    • Export Citation

  • IMF, 2003, Global Financial Stability Report, World Economic and Financial Surveys (Washington: International Monetary Fund, March), pp. 22–24.

    • Search Google Scholar
    • Export Citation

  • Joint Forum, forthcoming, Credit Risk Transfers, Joint Forum Working Group on Risk Assessment and Capital (Basel: Bank for International Settlements).

    • Search Google Scholar
    • Export Citation

  • Kiff, John, 2003, “Recent Developments in Markets for Credit-Risk Transfer,” Financial System Review, Bank of Canada (Ottawa, June).

    • Search Google Scholar
    • Export Citation

  • Kiff, John, Francois-Louis Michaud, and Janet Mitchell, 2003, “An Analytical Review of Credit Risk Transfer Instruments,” Financial Stability Review, Banque de France (June).

    • Search Google Scholar
    • Export Citation

  • Le Pan, Nick, 2003, “Adding Value to the Life Insurance Industry,” notes for a speech to the Life Insurance Institute of Canada Annual Conference (Toronto, June 3).

    • Search Google Scholar
    • Export Citation

  • Moody’s Investors Service, 2003, “Moody’s Views on Current Conditions in the U.S. Life Insurance Industry” (New York, December).

    • Search Google Scholar
    • Export Citation

  • Rajan, Raghuram, and Luigi Zingales, 2003, “Banks and Markets: The Changing Character of European Finance,” NBER Working Paper No. 9595 (Cambridge, Mass.: National Bureau of Economic Research).

    • Search Google Scholar
    • Export Citation

  • Rule, David, 2001a, “The Credit Derivatives Market: Its Development and Possible Implications for Financial Stability,” Financial Stability Review (London: Bank of England, June), pp. 117–40.

    • Search Google Scholar
    • Export Citation

  • Rule, David, 2001b, “Risk Transfer Between Banks, Insurance Companies and Capital Markets: An Overview,” Financial Stability Review (London: Bank of England, December), pp. 137–59.

    • Search Google Scholar
    • Export Citation

  • Standard and Poor’s, 2003a, “Structured Finance: ViewPoint on Credit Derivatives” (New York).

  • Standard and Poor’s, 2003b, “Demystifying Banks’ Use of Credit Derivatives,” RatingsDirect (New York, December).

  • Statistical Yearbook of German Insurance, 2003 (Berlin: German Insurance Association).

  • Swiss Re, 2000, “Asset-Liability Management for Insurers,” Sigma, No. 6/2000.

  • Swiss Re, 2003, “Insurance Company Ratings,” Sigma, No. 4/2003.

  • Zucker, Jason, and Jonathan Joseph, 2003, “The Life Preserver,” Fox-Pitt, Kelton Insurance Industry Update (November).