Solvency Regulation in the Property-Liability Insurance Industry: Empirical Evidence

Patricia Munch and Dennis E. Smallwood

Bell Journal of Economics, 1980, vol. 11, issue 1, 261-279

Abstract: This article reports empirical evidence concerning the effects of solvency regulation on the number of companies and frequency of insolvencies. Minimum capital requirements appear to reduce insolvencies by reducing the number of small, domestic firms. This supports the view of capital requirements as a differentially higher tax on small, new firms. Other forms of regulation have ambiguous effects or none. A comparison of the characteristics of insolvent and solvent firms supports the model of insolvency as the (unlucky) outcome of value-maximizing risk-taking.

Date: 1980
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