ILR would have ‘limited value’, Insurance Europe argues

Written by Adam Cadle

15/02/2021

An insurance liquidity ratio (ILR) would have “limited value”, Insurance Europe has argued.

In its response to a consultation by the International Association of Insurance Supervisors (IAIS) on its proposal for an ILR, Insurance Europe stressed that “its weaknesses include a loss of information on mismatches between liquidity needs and sources, and a lack of risk sensitivity”.

“It would, in particular, be inappropriate to apply the ILR beyond the global monitoring exercise for the purposes of micro-prudential regulation. A thorough understanding of liquidity sources and needs is required to understand insurers’ individual liquidity risk profiles, which a blunt factor ILR would fail to do.”

Insurance Europe added that liquidity risk is already well managed due to the insurance business model, existing regulatory provisions and insurers' integrated approach to liquidity and risk management. Furthermore, it said insurance groups have established liquidity risk management practices and liquidity frameworks tailored to the characteristics and nature of their business.

To avoid an unjustified increase of burden on firms, Insurance Europe has proposed that the IAIS instead leverages on insurers' existing internal liquidity frameworks and promotes industry best practices.

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