Conference on Insurance Regulation: financial stability experts praise the sector’s resilience

Currently, both the risks facing the financial system and its resilience are high. That was the assessment of Francesco Mazzaferro, Head of the Secretariat of the European Systemic Risk Board (ESRB). Focusing on only one side of the equation, he argued, does not provide a complete picture.

What concerns him, however, is the political direction. The regulatory framework painstakingly built after the 2008 financial crisis has been instrumental in helping Europe remain stable amid a turbulent global environment. Yet he observes a shift in public attitudes: because major crises have been absent for some time, awareness of their possibility has faded. “There is naturally much less demand for stability in society because, in fact, we have not experienced a crisis,” Mazzaferro said. Whether Europe can remain stable in an increasingly dangerous world if these hard-won achievements are questioned too readily is a question he deliberately left unanswered.

Insurers as anchors of stability

From the perspective of the Deutsche Bundesbank, the overall picture remains reassuring. Both the banking sector and the insurance industry have substantial capital buffers, and insurers’ solvency ratios remain high. According to Dr. Jörg Stephan, Director General for Financial Stability at the Bundesbank, this is no coincidence but rather the result of years of regulatory work.

He particularly highlighted the role insurers played during the recent energy crisis. While many market participants were selling assets, insurers moved against the trend and bought. This countercyclical behaviour helped stabilize financial markets.

Stephan cautioned, however, that this role should not be taken for granted. Unrealized losses on insurers’ balance sheets, so-called hidden losses, could reduce incentives to act countercyclically in future crises. Firms carrying losses in their portfolios behave differently from those with greater flexibility. He also pointed to a second risk scenario: if large numbers of life insurance policyholders were to surrender their contracts during periods of economic stress or rising interest rates, questions could arise about the availability of sufficient liquidity.

Geopolitics, artificial intelligence, and the private credit puzzle

Both supervisors identified three major sources of risk. First is the geopolitical environment, which is colliding with a corporate sector already weakened by structural challenges.

Second is the rapid digitalization of financial markets. Stablecoins, cryptocurrencies and the rise of artificial intelligence are reshaping market structures in ways that are difficult to model. Mazzaferro pointed to the market valuations of companies such as Anthropic, OpenAI and SpaceX, which together amount to at least USD 200 billion, roughly equivalent to Italy’s annual GDP. How markets will react to developments on that scale remains largely unknown.

The third risk factor highlighted by Stephan is the rapidly expanding market for private credit and hedge funds. While still relatively small in Europe, its links to the German financial system are growing. The main challenge is not its size but its lack of transparency. Reliable data are often unavailable because cross-border information sharing remains legally and politically difficult.

Rethinking systemic supervision

The panel also pointed to a conceptual shift in the way financial supervision is approached. According to Mazzaferro, the term NBFI (Non-Bank Financial Intermediaries), used to describe all financial actors outside the banking sector, has become outdated. In the future, the ESRB will no longer publish separate NBFI reports but will instead assess the financial system as a whole.

Risks do not stop at institutional boundaries; they spread horizontally across the entire system. As a result, insurers, banks and investment funds need to be analysed together. A system-wide top-down stress test, currently being developed jointly by the ESRB and the Bundesbank, is intended to support this approach.

At the same time, Stephan urged patience. Developing such tools takes time. What is already clear today, however, is that financial stability is not merely a regulatory objective, it is a competitive advantage. The regulatory framework built over recent decades has helped Europe remain resilient and capable of action in a fragile world. Undermining it lightly, both supervisors agreed, would be a serious mistake.