Abstract

This paper analyses the performance of the international insurance industry during the financial crisis and examines the importance of insurance to systemic financial market stability, emphasizing the need for correct assessment of the characteristics of insurance companies, such as their relative immunity to runs, their extremely low level of short-term financial debt, and their absence from the interbank market. The increasing participation of the insurance companies in the financial markets, recently emphasized by Trichet (2009), makes the debate on how regulation might dampen the natural pro-cyclicality of the financial sector extremely relevant for the insurance industry. Against this background, the paper describes the innovative provisions of the European Solvency II Directive approved in 2009, but proper evaluation of its effectiveness will have to wait until the implementing measures are known.