Supervisors and regulators need to understand the potential implications of the insurance sector for financial and systemic stability, as well as the tools available for surveillance of insurers. At the same time, literature focusing on these issues is very limited. This paper aims at filling this gap by examining the potential sources of financial system vulnerability in the insurance sector. It provides a brief overview of the insurance industry, reviews the risks insurers face, and examines recent failures of insurance companies that had systemic implications. Building on this experience, and the experience gained under the Financial Sector Assessment Program (FSAP), the paper proposes key indicators that should be compiled and used for surveillance of financial soundness of the insurance sector.