Insuring Against The Risk From Insurance

Compared with the banks, insurance companies withstood the calamity of 2008 pretty well. American International Group Inc. was the main exception -- it needed an enormous bailout -- but the rest of the industry was spared the worst. Does this mean that insurance companies pose no great challenge for financial regulators? It doesn’t. The insurance business is posing a bigger systemic risk than it used to. Regulators need to pay closer attention. For years, life insurers promised policy-holders guaranteed returns. When interest rates came down, some companies (notably in Germany) struggled to deliver. Managers responded by taking on more risk.