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.
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bail-in, resolution, insurance, financial stability, regulation
Document Type: Research Article
March 1, 2017
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Journal of Risk Management in Financial Institutions is the essential professional and research journal for all those involved in the management of risk at retail and investment banks, investment managers, broker-dealers, hedge funds, exchanges, central banks, financial regulators and depositories, as well as service providers, advisers, researchers and academics. Guided by expert Editors and an eminent Editorial Board, each quarterly 100-page issue does not publish advertising but rather in-depth articles, reviews and applied research by leading professionals and researchers in the field on six key inter-related areas: strategic and business risk, financial risk, including traditional/exotic credit, market and liquidity risks, operational risk, regulatory and legal risks, systemic risk, and sovereign risk.
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