OFR_2016_Financial-Stability-Report

Figure 55. Life Insurance Securities Lending Activity
($ billions) and Insurer Participation (number of
insurers)
More insurers are participating in securities lending
90
80
70
60
50
40
30
20
10
0
Insurers engaged in securities lending (left axis)
Securities lending activity (right axis)
2010 2011 2012 2013 2014 2015
Sources: SNL Financial LC, OFR analysis
Figure 56. SRISK Capital Shortfall ($ billions)
The median U.S. G-SII SRISK measure is above that of the
median U.S. G-SIB
80
70
60
50
40
30
20
10
Median U.S. G-SIB
Median U.S. G-SII
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: SRISK is a widely cited measure of a financial firm’s contribution
to systemic risk, and is an estimate of the capital a firm
would need in a severe market decline. G-SII stands for global
systemically important insurer. G-SIB stands for global systemically
important bank.
Sources: The Volatility Laboratory of the NYU Stern Volatility Institute
(https://vlab.stern.nyu.edu), OFR analysis
60
50
40
30
20
10
0
and Zhu, 2011). These include conditional Value-at-
Risk (CoVaR), distress insurance premium (DIP), and
SRISK (see Systemic Risk Metrics). All three rely on
publicly available market and financial data, including
the market value of equity; book value of equity, assets,
and liabilities; and control variables.
Using these metrics, the contribution to systemic
risk from U.S. global systemically important insurers
(G-SIIs) appears to be rising. In some cases, it may be
higher than for some U.S. global systemically important
banks (G-SIBs) (see Kaserer and Klein, 2016). Figure
56 shows the SRISK capital shortfall measure for
the median U.S. G-SIB and median U.S. G-SII. For
example, the contribution to systemic risk of the median
U.S. G-SII based on the SRISK measure has steadily
increased during the past decade. As of March 2016, it
stood above that of the median U.S. G-SIB pre-crisis.
Figure 57 compares several large U.S. insurers to
six of the U.S. G-SIBs. As of June 2016, two of the
insurers, Prudential and MetLife, were among the top
five riskiest firms according to SRISK and the top six
according to DIP. These insurers rank above Goldman
Sachs and Morgan Stanley based on SRISK. They rank
roughly equal to those investment banks based on DIP.
These market-based measures of systemic risk, combined
with other factors, suggest the need for vigilance
in monitoring the risks of some large U.S. insurers (see
Drivers of Insurers’ Systemic Risk Indicators).
Regulatory Policies Improving
Regulators have taken several policy steps to address the
risks posed by insurance companies since the financial
crisis. These actions include new requirements for firms
that are nonbank financial companies designated by
the Financial Stability Oversight Council, the Federal
Reserve’s proposed capital standards for insurers under
its supervision, and a requirement that insurers provide
state regulators with a risk and solvency assessment.
In June 2016, the Federal Reserve proposed enhanced
prudential standards for designated insurers related to
liquidity and risk management. It also proposed capital
64 2016 | OFR Financial Stability Report