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Insurance Regulation and the Global Financial Crisis: A Problem of Low Probability Events

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  • Christopher O'Brien

    (Business School: Centre for Risk and Insurance Studies, Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham, Nottinghamshire, NG8 1BB, UK.)

Abstract

We consider probabilistic approaches and stress tests as methods for regulators to set the minimum solvency margin for insurers. Each method has advantages and disadvantages. We assess the implications of the global financial crisis for each method, concentrating on life insurers. We have concerns that the probabilities used in probabilistic approaches are not robust. Regulators may find it beneficial to focus on the use of stress tests, although there are lessons to learn from the global financial crisis about the design and use of such tests.

Suggested Citation

  • Christopher O'Brien, 2010. "Insurance Regulation and the Global Financial Crisis: A Problem of Low Probability Events," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 35(1), pages 35-52, January.
    • Handle: RePEc:pal:gpprii:v:35:y:2010:i:1:p:35-52
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