from the Philadelphia Fed
— this post authored by Yaron Leitner
Do insurance companies pose a threat to financial stability? Historically, the answer has been no. But the insurance industry’s expansion into nontraditional activities has prompted reconsideration.
When we think of the U.S. insurance business, we usually think of companies that sell life, auto, or homeowner policies. The conventional wisdom is that these traditional insurance activities are regulated by the states largely to protect individual policyholders and should not be a concern to the Federal Reserve, whose regulation of banks is intended to protect the nation’s overall financial stability.
However, as became clear during the emergency bailout of the insurer American International Group (AIG) during the financial crisis in 2008, some insurance companies also engage in nontraditional activities, such as selling credit default swaps or lending securities, that could pose a threat to financial stability. The AIG episode has led some to suggest that the Fed should become involved in the regulation of large insurance companies.
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Source
https://philadelphiafed.org/-/media/research-and-data/publications/economic-insights/2018/q1/eiQ118-nontraditional_insurance_activities.pdf?la=en
