The contribution of South Africa’s insurers to systemic risk: thoughts for policymakers
The rationale for regulating financial markets is strong. First, these markets have a critical role to play in the well-being of economies of all sizes. Second, the consequences of failure of these markets is frequently felt well outside of the markets themselves. This regulation should be based on the foundation of a clearly-written publicly-stated set of objectives. One of these objectives ought to be the mitigation of systemic risk, that is the risk that the actions of a financial-sector entity could trigger widespread damage to large parts of the financial markets and to the real economy. Establishing and utilising an appropriate mix of regulatory methods, however, is rendered extraordinarily challenging by the intrinsic complexity, delicacy even, of these markets. This paper explores these issues, applies them to insurance markets, in general and then in South Africa, and asks whether more could be done by South Africa’s insurance regulators to mitigate the systemic risk attributable to the country’s insurers. At heart is the concern that increasingly sophisticated efforts to measure and manage entity-specific risk may have the consequence of adding materially to systemic risk.
Keywords: Financial markets, insurance, systemic risk, regulation
Copyright for articles published in this journal is retained by the Actuarial Society of South Africa
Actuarial Society of South Africa 2020
Content on this site is licensed under a Creative Commons Attribution 4.0 Licence.
For details see: http://creativecommons.org/licenses/by/4.0
The views and opinions of this journal are, unless otherwise stated, those of the authors.
Editorial opinion or comment is, unless otherwise stated, that of the Editor and publication
thereof does not indicate the agreement of the Actuarial Society of South Africa.