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

Hato Schmeiser () and Caroline Siegel ()
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Hato Schmeiser: Institute of Insurance Economics, University of St. Gallen, Postal: Tannenstrasse 19, 9000 St. Gallen, Switzerland, http://www.ivw.unisg.ch/
Caroline Siegel: Institute of Insurance Economics, University of St. Gallen, Postal: Tannenstrasse 19, 9000 St. Gallen, Switzerland, http://www.ivw.unisg.ch/

Journal of Financial Perspectives, 2013, vol. 1, issue 2, 119-131

Abstract: 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.

Keywords: solvency; insurance group; regulation; risk management (search for similar items in EconPapers)
JEL-codes: G22 G28 G32 G38 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofipe:0014

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