Captial (!) requirements or pricing constraints? An economic analysis of measures for insurance regulation

  • Depending on the point of time and location, insurance companies are subject to different forms of solvency regulation. In modern regulation regimes, such as the future standard Solvency II in the EU, insurance pricing is liberalized and risk-based capital requirements will be introduced. In many economies in Asia and Latin America, on the other hand, supervisors require the prior approval of policy conditions and insurance premiums, but do not conduct risk-based capital regulation. This paper compares the outcome of insurance rate regulation and riskbased capital requirements by deriving stock insurers’ best responses. It turns out that binding price floors affect insurers’ optimal capital structures and induce them to choose higher safety levels. Risk-based capital requirements are a more efficient instrument of solvency regulation and allow for lower insurance premiums, but may come at the cost of investment efforts into adequate risk monitoring systems. The paper derives threshold values for regulator’s investments into risk-based capital regulation and provides starting points for designing a welfare-enhancing insurance regulation scheme.

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Metadaten
Author:Sebastian SchlütterGND
URN:urn:nbn:de:hebis:30:3-770435
Series (Serial Number):ICIR Working Paper Series (No. 3/11 [06.06.11])
Publisher:International Center for Insurance Regulation
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2011
Year of first Publication:2011
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2024/03/26
Edition:Version June 6, 2011
Page Number:29
HeBIS-PPN:516922661
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht