Statutory bail-in for an orderly resolution of insurers

Abstract

This paper explores how statutory bail-in can fit in with the resolution of insurers. Statutory bail-in has been debated mainly in the context of systemically important banks. This paper, therefore, first investigates how insurers, in contrast with banks, can be interconnected with the financial system. Then, it explores in what circumstances statutory bail-in can be an effective tool for the resolution of insurers, taking into account specificities of insurance business, existing resolution regimes for insurers, past cases of failed insurers and possible technical challenges in implementation. This paper concludes that statutory bail-in could be a possible tool for insurance resolution in the following limited cases: (1) an insurer is considerably interconnected with other financial institutions through transactions with them and (2) the supervisor considers that, due to the interconnected nature, failure of the insurer could disrupt the stability of the financial system, beyond financial market instability, and ultimately, have an adverse impact on the real economy.