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Regulating Insurance Groups: A Comparison of Risk-Based Solvency Models

Listed author(s):
  • Schmeiser, Hato


    (Institute of Insurance Economics, University of St. Gallen)

  • Siegel, Caroline


    (Institute of Insurance Economics, University of St. Gallen)

Registered author(s):

    Regulators are currently developing group-wide capital standards that are intended to enable the effective monitoring of insurance groups. Some jurisdictions are taking steps toward models with a focus on the groups’ consolidated balance sheets, while other models focus on the interrelations of the groups’ legal entities. This paper compares two general approaches to group-wide solvency in light of the regulatory challenges of regulatory inconsistency, risk dependencies, and risk aggregation: a consolidated approach and a legal entity approach. In order to contribute to the current discussion on the regulation and risk management for insurance groups, we support our line of reasoning by using a generalized model of Gatzert and Schmeiser (2011). Our findings show that a solely consolidated viewpoint is likely to underestimate shortfall risks in times of financial crises, whereas while a sole focus on the interrelated legal entities generally makes it possible to display different group structures it cannot control regulatory arbitrage.

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    Article provided by EY Global FS Institute in its journal Journal of Financial Perspectives.

    Volume (Year): 1 (2013)
    Issue (Month): 2 ()
    Pages: 119-131

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    Handle: RePEc:ris:jofipe:0014
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