1. RAY SPUDECK, CHIEF ECONOMIST FLORIDA OFFICE OF INSURANCE REGULATION DECEMBER 3, 2009 Systemic Risk: Initiatives and Issues

2. Systemic Risk: What is it? The risk inherent to the entire market or entire market segment. www.investopedia.com Risk that affects an entire financial market or system, and not just specific participants. www.investorwords.com From the FSB, IMF, and BIS: in practice G-20 members consider an institution, market or instrument as systemic if its failure or malfunction causes widespread distress, either as a direct impact or as a trigger for broader contagion. The interpretation, however, is nuanced in that some authorities focus on the impact on the financial system, while others consider the ultimate impact on the real economy as key. http://www.financialstabilityboard.org/publications/r_091107c.pdf

3. International Financial Supervisory Activities In April 2009, the G20 asked the IMF, the BIS and the FSB to develop guidance for national authorities to assess the systemic importance of financial institutions, markets and instruments. The first report, “Initial Considerations” was published in October 2009

4. Initial Considerations Report Developed the definition used in the first slide Identified three characteristics to assess systemic importance: Size Substitutability Interconnectedness Future Work to develop high level guidelines Other bodies are creating their own work products as well

5. IAIS Activity Financial Stability Committee  Provided Feedback to FSB,BIS,IMF document adding an additional consideration – development timeframe Subcommittees and Workstreams to be identified on:  Macroprudential Tools  Macroprudential Surveillance  Systemically important financial institutions

6. The IAIS “Systemic” Work Workstream A – Development of Macroprudential Tools for National Authorities Purpose: Financial sector authorities should have suitable macroprudential tools to address systemic vulnerabilities. Measures that are simple to understand and to implement would be preferable to more complex ones, and tools that rely on pre-specified limits or rules are attractive. However, rules need to be complemented with the informed judgment of financial sector authorities based on their joint assessment of the risks across the financial system. Workstream B – Development of Macroprudential Surveillance Purpose: The IAIS will enhance analysis of insurance markets and explore the possibility of conducting macroprudential surveillance. The Financial Stability Committee will develop concrete proposals by the end of 2009 and report to the Executive Committee (as per wording in the Financial Stability Framework approved by Exco in Rio) Workstream C - Systemically Important Financial Institutions (SIFIs) and The “Too Big To Fail” (TBTF) Problems Purpose: The G20 has called on the FSB to propose by the end of October 2010 possible measures to address the “too big to fail” (TBTF) problems associated with systemically important financial institutions (SIFIs). The FSC will work in conjunction with the FSB to ensure that issues relevant to the insurance sector are taken into account and will encourage other IAIS working parties to consider related issues in their work programs.

7. My Thoughts Is the insurance sector a natural generator of systemic risk episodes? I am skeptical. Financial Guarantee Insurance Is insurance one of the largest natural transmission pathways? I am a believer We need to be part of the discussion to avoid the unintended consequences of bad policy; our seat at the table is imperative

8. THANK YOU The Work is Just Beginning