Systemic Risk - Actuarial

Question 13. The Council may consider a company’s liquidity risk, based on a set of proposed factors (short-term financial obligations, financial arrangements that can be terminated by counterparties and therefore become short-term, etc.) when evaluating the asset liquidation channel.

  • Are there other factors the Council should consider, in addition to those proposed?
  • Is there an appropriate time period during which the Council should evaluate a company’s liquidity risk, tailored for specific types of financial products?

Insurers commonly assess their own liquidity requirements and available liquidity over several distinct time horizons—for example, over 90 days, 180 days, and one year—to assess the company’s resilience to stressed-liquidity draws over each horizon.

The size of the entity can be a relevant factor in assessing amounts available by timeframe.

The question, as stated, focuses on “company” liquidity risk, but market risks are important as well.

From a marketwide or macroprudential perspective, the ability of the financial markets to absorb correlated stress liquidation demands from multiple market participants should be assessed.

2019/05/13 - Academy of Actuaries Letter to FSOC -  5p