As the European Union seeks to draft new plans governing the investments made by insurance companies, the world’s largest financial institution has voice concern over the initiative. The Institute of International Finance claims that the new rules being weighed by the EU will encourage insurers to seek out riskier investments. Such practice would put the world’s financial infrastructure in a dangerous position, as the assets most often pursued by insurance companies looking to generate major profit are the ones whose failure is disastrous.
The EU is looking to change regulations to both the banking and insurance systems throughout Europe. The new rules revolve around providing these organizations incentives to hold sovereign debt as part of their capital buffers, a move the Institute of International Finance says is dangerous as it will only lead to more instability in an already flimsy economy.
According to a report from the Institute, the new rules are contrary to well established standards of risk management. The report suggests that the rules will create a division between banks, insurers and regulators, causing unforeseeable problems that will be amplified by the current turmoil in the world’s financial markets.
The EU has yet to pass judgment on the rules, whose overarching proposal is called Solvency II. EU officials hold that changes must be made to the current financial system to steel it against future tribulations. While some of the changes may be radical, officials have yet to find reason for anything less than dramatic change.