Insurance, Financial Stability and Systemic Risk

Philippe TRAINAR * Professeur, Cnam (Conservatoire national des arts et métiers) ; directeur, Fondation Scor pour la Science. Contact : ptrainar-external@scor.com.Pour des raisons de volume, ce papier a été raccourci par la REF qui assume seule la responsabilité de ces modifications. Le texte intégral est disponible auprès de l'auteur.

The collapse of the US monoliners and the rescue of AIG by the US government may have given the impression that we would have finally had the proof of the systemic nature of insurance. This conclusion relies on a twin misleading argumentation: should insurance be a victim of a systemic crisis does not allow us to conclude that it is systemic; if an insurer is at the epicentre of a systemic shock, because of its banking or quasi-banking activities, does not allow us to conclude that insurance operations are systemic. As demonstrated in this article, insurance operations are not, by nature, systemic. That does not mean that the failure of a big insurer would not constitute a big economic shock, as would the default of a carmaker or of whatever big company. This observation has important consequences for the design of an optimal insurance supervision and of its articulation with banking supervision. Of course, a significant financial shock does not constitute, per se, a systemic risk and one should not substitute one for the other, especially with regard to prudential supervision.