Non-bank financial institutions: assessment of their impact on the stability of the financial system

Insurance and pension fund sector risks 
 
 
 
 
 
 
94 
 
 
 
 
 
 
Table 18: Overview of risks to financial stability related to insurance undertakings and pension 
funds 
 
 
U
nde
rly
ing
ca
us
es
Excessive risk-taking
by insurance undertakings and pension funds due to: 

Pension fund sponsor faced with investment risk, e.g., in defined benefit schemes 

Insurance undertakings faced with investment risk by carrying out non-traditional/non-
insurance activities 
Liquidity risk 
of insurance undertakings and pension funds financial derivatives activity.
Regulatory requirements 
that may lead to correlated sales of assets as a result of asset downgrades. 
Mul
tipl
ie
rs
Size 
of insurance undertakings and pension funds 
Inter-connectedness 
of insurance undertakings and pension funds to banks and other NBFIs (due 
partly to their size) 
Pr
ox
im
at
e 
ca
us
es
Events
 
around the financial crisis
 
bringing about 
asset devaluations 
either directly or through 
heightened perceptions of counterparty risk. 
Di
rec
t 
im
pa
ct
s
Balance sheet impacts 
on insurance undertakings and pension funds.