Regulators monitor insurers' exposure to alternative assets

Efforts aimed at improving consistency may have immediate effects in private credit market.

Global insurers are facing rising regulatory costs as authorities respond to structural changes in the life insurance sector, along with long-term risks linked to climate change and artificial intelligence (AI), Fitch Ratings said in a new report.

Whilst climate and AI pose longer-term challenges, Fitch noted that regulatory efforts aimed at improving consistency in the life sector could have more immediate effects, particularly as they intersect with the growing private credit market. 

Regulators, including the International Association of Insurance Supervisors (IAIS), the National Association of Insurance Commissioners, and the Bermuda Monetary Authority, are monitoring increased allocations to alternative assets and the growing use of cross-border asset-intensive reinsurance. 

Their goal is to identify liquidity and credit risks that may not be fully captured in current capital requirements and to prevent regulatory arbitrage and financial stability threats.

The IAIS adopted the Insurance Capital Standard at the end of 2024 as a global solvency benchmark for internationally active insurance groups. 

It has also designated climate risk as a regulatory priority, focusing on insurers' ability to withstand climate-related shocks and contribute to broader mitigation efforts. 

In Europe, the European Insurance and Occupational Pensions Authority (EIOPA) is recommending higher capital charges for natural catastrophe exposures under Solvency II, whilst several national regulators are also ramping up climate-related oversight.

At the same time, regulatory attention to AI is increasing, potentially offsetting some of the efficiency gains insurers expect from the technology. 

Authorities are working on guidance to ensure the responsible use of AI, with the IAIS currently reviewing feedback on its draft application paper covering issues such as bias, data privacy, and accountability. 

EIOPA is also running a public consultation on AI governance and risk management.