International Association of Insurance Supervisors issues supervisory analysis and sets next steps on life insurers’ alternative assets and asset-intensive reinsurance

The International Association of Insurance Supervisors (IAIS) published an issues paper analysing structural shifts in the life insurance sector driven by rising allocations to alternative assets and increased use of cross-border asset-intensive reinsurance (AIR). It sets out key supervisory focus areas and a framework for assessing potential financial stability implications, concluding that systemic risk appears limited at the global aggregated level but that rapid growth and concentrated exposures among certain insurers warrant close monitoring. A globally agreed, principles-based classification and first globally agreed definition of alternative assets is intended to improve consistency in monitoring and risk assessment, focusing on valuation uncertainty, illiquidity and complexity. The paper highlights supervisory concerns on AIR including transaction complexity, recapture risk, concentration risk, and potential exploitation of cross-jurisdictional differences in reserve valuation, capital requirements and investment flexibility, and points to supervisory scrutiny, scenario analysis and counterparty risk assessment as key tools. Next steps include enhanced monitoring of alternative asset and AIR exposures, more in-depth systemic risk analysis using improved data, and development of practical supervisory guidance, alongside a review of existing IAIS standards to identify and recommend improvements. The analysis draws on IAIS multi-year monitoring and incorporates feedback from a public consultation that generated more than 500 stakeholder comments, with responses published alongside the paper.