IAIS: AI and geopolitics are raising insurer risk - while balance sheets stay strong
Global insurers are entering 2026 on solid footing. The IAIS reports healthy solvency, liquidity, and profitability across the sector, with systemic risk slightly lower than last year and still well below banking. Non-life combined ratios improved in several regions. Life carriers held up on stable investment income and better spreads.
The catch: three fast-moving risk drivers need tighter control - private credit in life portfolios, geoeconomic fragmentation, and expanded AI use across the value chain. Supervisors are stepping up stress testing, cross-border coordination, and model oversight.
Private credit: yields are up, so are hidden frictions
Life insurers have been increasing exposure to private credit. While overall exposure remains moderate, the IAIS flags vulnerabilities in valuation, liquidity, borrower quality, and complex structures. Expect more supervisory monitoring and systemic risk analysis around this asset class.
- Set portfolio limits by rating bucket, sector, borrower, and structure (e.g., senior vs. mezz, funds vs. direct).
- Strengthen independent valuation and price-challenge processes; document model and input choices.
- Improve look-through on funds/CLOs; map covenants and refinancing walls at the asset level.
- Run liquidity ladders and collateral tests; model policyholder surrenders alongside credit spread shocks.
- Predefine downgrade/migration triggers with re-underwriting and hedging playbooks.
- Enhance disclosures to boards and supervisors on concentrations and valuation uncertainty.
Geopolitical fragmentation: tougher ALM for cross-border groups
Trade tensions, sanctions, and diverging monetary policies are hitting asset values, currencies, and rates. That makes asset-liability management more complex, especially for international groups. Supervisors are responding with stronger stress testing and better cross-border coordination.
- Expand scenarios to include currency shocks, basis risk, and abrupt rate pivots across jurisdictions.
- Model hedge effectiveness and collateral calls under stressed liquidity conditions.
- Tighten sanctions screening and jurisdictional compliance for assets, cedants, and intermediaries.
- Revisit reinsurance counterparty concentrations by domicile and legal entity.
- Plan for trapped capital and ring-fencing risks in resolution and recovery playbooks.
AI in underwriting, pricing, and claims: efficiency with accountability
Insurers report faster decisions and lower costs from AI. Regulators, however, are pushing for stronger model governance, bias controls, cyber resilience, and oversight of third-party providers. Expect more scrutiny of explainability and decision fairness for high-impact use cases.
- Stand up a model inventory with risk-tiering; assign clear ownership and approval gates.
- Track data lineage, consent, and retention; limit use of sensitive attributes and proxies.
- Routinely test for bias and drift; document fairness thresholds by product and jurisdiction.
- Right-size explainability: simpler for pricing support, deeper for adverse decisions and claims.
- Build third-party due diligence into procurement; define SLAs, audit rights, and incident duties.
- Harden API and data pipelines; integrate AI incidents into enterprise cyber response.
- Report model risk metrics to the board (loss impact, overrides, complaints, and remediation status).
For broader governance guidance, see the IAIS resources and the NIST AI Risk Management Framework.
If your teams need practical upskilling on AI literacy, risk, and workflows, you can browse role-focused options here: AI courses by job.
Climate and catastrophe: exposure steady, terms shifting
Overall exposure levels are broadly stable, but coverage terms and reinsurance protections are moving. Supervisors continue to watch climate scenario analysis and how carriers adjust underwriting appetites.
- Refresh cat models and "view of risk" with the latest hazard data and event sets.
- Stress-test reinsurance layers and aggregates; assess tail gaps and reinstatement costs.
- Price to emerging frequency/severity, not just recent loss experience; check demand surge effects.
- Tighten accumulation management for secondary perils and regional clusters.
- Align disclosures with supervisory expectations for climate scenarios and resilience actions.
Reinsurers: disciplined and well capitalised
Reinsurers remained well capitalised in 2024, with stable underwriting, premium growth, and conservative investments despite prior heavy nat cat years. This supports market stability, but pricing and terms will stay disciplined.
- Lock in multi-year placements where they make sense and diversify panels.
- Monitor reinsurer credit quality and collateral terms; avoid single-point dependencies.
- Bring earlier, data-rich submissions to improve placement outcomes.
What to watch in 2026
- Liquidity stress in private credit funds and policyholder behavior under spread shocks.
- Cross-border data and reporting asks from supervisors tied to systemic risk monitoring.
- AI-specific rules on fairness, explainability, and third-party accountability.
- Property cat capacity, attachment points, and aggregate structures at mid-year renewals.
- Rate path shifts driving duration and ALM mismatches in life and annuity books.
Bottom line: capital is sound and conditions look stable, but the risk mix is changing. Tighten governance on private credit, expand cross-border and liquidity stresses, and mature AI oversight now-before regulators insist on it.
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