Insurance Solvency Regulation: Regulatory Approaches Compared
AbstractIn this paper we compare the main regulatory frameworks: American (US RBC, Risk-Based-Capital), Swiss (SST, Swiss Solvency Test) and European (Solvency II). We improve on the existing literature by focusing on technical aspects of regulation schemes, particularly the capital requirements’ calculation and by including latest quantitative and qualitative improvements of the Solvency II project. The comparison concludes that Swiss and European systems are advanced regulatory processes in comparison with American regulation although the latter system was perceived as a revolution some years ago. Even if the Swiss regime and the future European directive are quite similar, there are also some key differences to highlight. European approach to determine regulatory capital is mainly risk-sensitive, based on risk measures, whereas US RBC is mainly based on static factors and accounting data reported in the audited statutory annual statement. The three systems also differ with regards to the use of different risk measures, the consideration of operational and catastrophe risks, the use of internal models, the treatment of diversification effect, the limits imposed to investments, and the consideration of qualitative aspects.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 10-041.
Length: 51 p.
Date of creation: Aug 2010
Date of revision:
Publication status: Published by:
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More information through EDIRC
Solvency II; Swiss Solvency Test; US RBC; Insurance Regulation;
Find related papers by JEL classification:
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-11 (All new papers)
- NEP-IAS-2010-09-11 (Insurance Economics)
- NEP-REG-2010-09-11 (Regulation)
- NEP-RMG-2010-09-11 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- J. David Cummins & Martin F. Grace & Richard D. Phillips, 1998. "Regulatory solvency prediction in property-liability insurance: risk-based capital, audit ratios, and cash flow simulation," Working Papers 98-20, Federal Reserve Bank of Philadelphia.
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