IAIS finalises liquidity metrics as an ancillary indicator for its Global Monitoring Exercise

Written by Adam Cadle

23/11/2022

The International Association of Insurance Supervisors (IAIS) has published liquidity metrics as an ancillary indicator for its Global Monitoring Exercise (GME).

The liquidity metrics will serve as a tool to facilitate the IAIS’ monitoring of the global insurance sector’s liquidity risk and for the IAIS to assess insurers’ liquidity exposure from a macroprudential perspective, which may be critical as insurers have been exposed to liquidity shortfalls in previous crises.

The liquidity metrics form one part of the IAIS’ overall approach to the assessment and mitigation of liquidity risk in the insurance sector.

• With respect to assessing liquidity risk, the IAIS’ GME covers insurance sector trends and risks, including liquidity risk, based on data collected from approximately 60 of the largest international insurance groups (individual insurer monitoring or IIM) and aggregate sector-wide data from supervisors across the globe (sector-wide monitoring or SWM), covering over 90% of global written premiums.
• With respect to mitigating liquidity risk, the IAIS’ global standards include supervisory requirements on insurers to adequately assess, manage and disclose their liquidity risk, including in stress situations. The IAIS has also developed practical guidance material on the supervision of liquidity risk.

The new ancillary indicator will provide an additional perspective on liquidity risk within the GME but is not intended to replace any current indicator of the IIM methodology. Because of the complexity of monitoring liquidity risk of insurance groups based on any single indicator and the inherent limitations of any single approach given the many dimensions of liquidity risk to consider, the IAIS has developed multiple liquidity metrics for use in the IIM.

The metrics were developed as part of a multi-year project, which has benefited from two public consultations and intensive testing through the IIM data collections. In addition to the document describing the liquidity metrics, the IAIS has published the resolution of comments received in the public consultation on Liquidity Metrics – Phase 2. The IAIS will continue to assess and refine the liquidity metrics going forward.

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