Towards a Global Solvency Model in the Insurance Market: A Qualitative Analysis
Abstract
:1. Introduction
2. Regulatory Changes in Insurance Solvency: Literature Review
2.1. European Union (Solvency II)
2.2. United States of America
2.3. China
2.4. Australia
2.5. Brazil
2.6. South Africa
3. Materials and Methods
- C1: The risk-based capital formula should provide incentives for weak companies to hold more capital and/or reduce their risk exposure without significantly distorting insurers’ financial decisions.
- Facilitate the rehabilitation of weak insurance companies.
- Facilitate the orderly liquidation of companies.
- Limit the risk of insurers at risk of insolvency
- C2: The risk-based capital formula should reflect the main risks affecting insurers and be sensitive to how these risks differ between insurers.
- C3: The weight of each risk must be proportional to its impact on the total insolvency risk. The criterion is met if:
- The risk dependency structure is considered. In this way, the correlations reflect the dependencies and can even be developed using internal models [30].
- C4: The risk-based capital system should focus on identifying insurers who generate the highest insolvency costs.
- C5: The formula and/or measurement of real capital should reflect, where possible, the economic values of assets and liabilities.
- C6: Whenever possible, the risk-based capital system should prevent inaccurate reporting or loss of reserves and other forms of insurer manipulation.
- C7: The formula should avoid complexity by maintaining equity in the increased accuracy for risk measurement.
- C8: The structure must be appropriate to economic crises and systemic risk. Regulation should anticipate systemic risk and prevent the insurance industry from being involved in the economic cycle when crises occur.
- C9: The regulation must carry out an evaluation of the management processes and must mainly consider the determinants of the management capacities. This criterion requires:
- A structure and instruments that allow the regulator to detect situations and causes of insolvency in its early stages [70]. There must be an indicator that prevents the lack of solvency capital.
- Qualitative analyses to be conducted which detect those qualitative factors that lead to an insurer’s insolvency—such as management inexperience, incorrect business plans [30,69], mismanagement or strategic risk [29,83,84]—and those that provide for it—such as internal controls or expert advice—which can be even more effective than strict capital requirements [69].
- Regulators to have supervisory and monitoring tools in addition to capital requirements [85].
- C10: Flexibility of the structure to adapt to the times. The model must be flexible in general concepts and parameters. Empirical understanding and theoretical development, as models and concepts, must lead to the structure’s improvement. This criterion analyses whether:
- The market moves faster than regulation, so imbalances can affect policyholders [30]. The sustainability of the regulatory regimes, mainly those of solvency, is thus based on the level of market competition and a system’s capacity to adapt to change. A system that is very demanding in terms of the levels of solvency capital requirement can push more insurers out of the market than is necessary [50], which results in a reduction in the number of entities that make up the market by changing from an atomised to a centralised market.
- The degree of market competitiveness when agents interfere tends to limit regulation. Highly regulated markets allow firms to be highly competitive and each individual player has less power [86].
- C11: Strength of risk management and market transparency. Solvency regulation requires insurers to manage risk quantitatively. Increased market transparency ultimately reduces the need for regulation.
4. Results
4.1. C1: Provides Appropriate Incentives
4.2. C2: Risk-Sensitive Formula
4.3. C3: Well-Calibrated Formula
4.4. C4: Identification of High Insolvency Costs
4.5. C5: Economic Values Considered
4.6. C6: Avoid Inaccurate Information
4.7. C7: Simple Formula
4.8. C8: Structure Appropriate to the Crisis
4.9. C9: Evaluation of the Management System
4.10. C10: Flexibility in Adaptation
4.11. C11: Strength of Management and Market Transparency
5. Discussion
6. Conclusions
- (i)
- Establishing limits and restrictions on investments, activities, energies and/or technologies that are considered unsustainable;
- (ii)
- Providing incentives for those that are sustainable;
- (iii)
- Creating new lines of business to offer products and services that are sustainable, promote sustainability and create social value or have a positive impact on the environment;
- (iv)
- Complying with current and future standards, especially those related to sustainability.
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Acknowledgments
Conflicts of Interest
Appendix A. Summary of the Models Analysed
System | EU (SII) | US | China | Brazil | Australia | South Africa |
---|---|---|---|---|---|---|
1.General information | ||||||
1.1. Country of application | European Union | Unites States | China | Brazil MCR | Australia | South Africa |
1.2. Year of introduction | 2016 | 2008 | 2016 | 2015 | 2013 | 2018 |
1.3. Main pillars | 1. Quantitative requirements on capital | 1. Rule-based formula | 1. Quantitative requirements on capital | 1. Quantitative requirements on capital | 1. Quantitative requirements on capital | 1. Quantitative requirements on capital |
2. Qualitative review by the supervisor | 2. Qualitative review by the supervisor | 2. Qualitative requirements on the characteristics of the investments | 2. Qualitative review by the supervisor | 2. Qualitative review by the supervisor | ||
3. Public information | 3. Public information | 3. Public information | 3. Public information | |||
1.4. Regulated companies | Insurance and reinsurance companies | Insurance and reinsurance companies | Insurance and reinsurance companies | Insurance and reinsurance companies | Insurance and reinsurance companies | Insurance and reinsurance companies |
1.5. Consideration of management risk | Slightly catch 2 | No | Yes | No | ||
1.6. Public information requirements | Yes | Yes | Yes | Yes, but administrations | Yes | Yes |
2.Definition of required capital | ||||||
2.1. Typology of the model | Static factors + dynamic cash flow models | Static factors | Static factors + dynamic cash flow models | Static factors + dynamic cash flow models | Static factors + dynamic cash flow models | Static factors + dynamic cash flow models |
2.2. Rule-based/Principle-based | Principle-based | Rule-based | Rule-based | Principle-based | Principle-based | Principle-based |
2.3. Orientation to the global balance | Yes | No | Yes | Yes | Yes | Yes |
2.4. Time horizon | 1 year | 1 year | 1 year | 3 months | 1 year | 1 year |
2.5. Risk/calibration measure | 99.5% VaR | VaR 99% | VaR 99.5% (Catastrophic risk) | VaR 99% | 99.5% VaR | 99.5% VaR |
2.6. Operational risk | Qualitatively | No | Qualitatively | Yes | Yes | Qualitatively |
2.7. Catastrophic risk | Yes | No | Yes | No | Yes | Yes |
2.9. Internal models | Yes | No | No | No | Yes | Yes |
3.Definition of available capital | ||||||
3.1. Definition based on market or accounting values | Market values | Book values | Book and market values | Market values | Market values | Market values |
3.2. Classification of available capital | Yes (3) | No | Yes (4) | Unspoken | Yes | Yes |
3.3. Considerations of off-balance sheet items | Yes | No | No | No | Yes | Yes |
4.Intervention | ||||||
4.1. Levels of intervention | 2 | 4 | 4 | 2 | 2 | 3 |
4.2. Transparency of sanctions | Are not explicit | Strict, regulated | Strict, regulated | Yes, deadlines but no sanctions | Are not explicit | Are not explicit |
References
- Orie, M. The UN shift from social research to protecting the environment to governance-from Stockholm to Rio 1992 to Rio + 20 to the principles of sustainable insurance. Risk Man News 2012, 51, 12–16. [Google Scholar]
- UNEP, FI. The Global State of Sustainable Insurance Understanding and Integrating Environmental, Social and Governance Factors in Insurance. 2009. Available online: https://www.unepfi.org/fileadmin/documents/global-state-of-sustainable-insurance_01.pdf (accessed on 4 April 2022).
- UNEP, FI. Principles for Sustainable Insurance. 2012. Available online: https://www.unepfi.org/fileadmin/documents/PSI_document-en.pdf (accessed on 4 April 2022).
- UNEP, FI. Insurance 2030 Harnessing Insurance for Sustainable Development. 2009. Available online: https://www.unepfi.org/psi/wp-content/uploads/2015/10/Insurance_2030_FINAL6Oct2015.pdf (accessed on 4 April 2022).
- Nogueira, F.G.; Lucena, A.F.P.; Nogueira, R. Sustainable insurance assessment: Towards an integrative model. Geneva Pap. Risk Insur.—Issues Pract. 2017, 43, 275–299. [Google Scholar] [CrossRef]
- Gatzert, N.; Reichel, P.; Zitzmann, A. Sustainability risks & opportunities in the insurance industry. German J. Risk Insur. 2020, 109, 311–331. [Google Scholar]
- Zhao, Y.; Bai, M.; Liu, Y.; Hao, J. Quantitative analyses of transition pension liabilities and solvency sustainability in China. Sustainability 2017, 9, 2252. [Google Scholar] [CrossRef] [Green Version]
- Mills, E. From Risk to Opportunity: 2007: Insurer Responses to Climate Change, Ceres. 2007. Available online: https://insurance.lbl.gov/opportunities.html (accessed on 4 April 2022).
- Scordis, N.A.; Suzawa, Y.; Zwick, A.; Ruckner, L. Principles for Sustainable Insurance: Risk Management and Value. Risk Manag. Insur. Rev. 2014, 17, 265–276. [Google Scholar] [CrossRef]
- Campagne, C.; van der Loo, A.; Yntema, J. Contribution to the method of calculating the stabilization reserve in life assurance business. In Gedenkboek Verzekeringskamer 1923–1948; Staatsdrukkerij- en uitgeverijbedrijf: Den Haag, The Netherlands, 1948; pp. 338–378. [Google Scholar]
- Campagne, C. Minimum Standards of Solvency for Insurance Firms; Report to the Report of the ad hoc Working Party on Minimum Standards of Solvency. OECD. TFD/PC/(61); OECD: Paris, France, 1961; Volume 1. [Google Scholar]
- PRA. The impact of climate change on the UK insurance sector. In A Climate Change Adaptation; Prudential Regulation Authority: London, UK, 2015. [Google Scholar]
- EIOPA. Opinion on Sustainability within Solvency II; EIOPA-BoS-19/241 30; European Insurance and Occupational Pensions Authority: Frankfurt am Main, Germany, September 2019. [Google Scholar]
- Grund, F. Sustainability: A duty and a challenge for the insurance industry. BaFin Perspect. 2019, 2, 29–33. [Google Scholar]
- EIOPA. Opinion on the Supervision of the Use of Climate Change Risk Scenarios in ORSA; EIOPA-BoS-21-127; European Insurance and Occupational Pensions Authority: Frankfurt am Main, Germany, 19 April 2021. [Google Scholar]
- Brogi, M.; Cappiello, A.; Lagasio, V.; Santoboni, F. Determinants of insurance companies’ environmental, social, and governance awareness. Corp. Soc. Responsib. Environ. Manag. 2022, 1–13. [Google Scholar] [CrossRef]
- Eling, M.; Holzmüller, I. An overview and comparison of risk-based capital standards. J. Insur. Regul. 2008, 26, 31–60. [Google Scholar]
- IAIS. Principles on Capital Adequacy & Solvency; International Association of Insurance Supervisors: Basel, Switzerland, January 2002. Available online: http://amf.gov.al/pdf/publikime2/edukimi/sigurime/Principles%20on%20capital%20adequacy%20and%20solvency.pdf (accessed on 30 May 2021).
- IAIS. Insurance Core Principles; International Association of Insurance Supervisors: Basel, Switzerland, November 2018. [Google Scholar]
- EC. Recommendations on the Quality of the Information Presented in Relation to Corporate Governance; European Comission: Brussels, Belgium, 2014. [Google Scholar]
- Rajoria, D.K. Corporate governance and non-disclosure of material information: An insight into the Wadia case. Comp. Law J. 2020, 1, 33–40. [Google Scholar]
- Klein, R.W. Principles for insurance regulation: An evaluation of current practices and potential reforms. Geneva Pap. Risk Insur.—Issues Pract. 2011, 37, 175–199. [Google Scholar] [CrossRef] [Green Version]
- Cummins, J.D.; Harrington, S.; Klein, R.W. Insolvency experience, risk-based capital, and prompt corrective action in property–liability insurance. J. Bank Financ. 1995, 19, 511–527. [Google Scholar] [CrossRef]
- Cummins, J.D.; Grace, M.F.; Phillips, R.D. Regulatory Solvency prediction in property-liability insurance: Risk-based capital, audit ratios, and cash flow simulation. J. Risk Insur. 1999, 66, 417–458. [Google Scholar] [CrossRef]
- Grace, M.; Harrington, S.; Klein, R.W. Risk-based capital and solvency screening in property-liability insurance. J. Risk Insur. 1998, 65, 213–243. [Google Scholar] [CrossRef]
- Munch, T.; Smallwood, D.E. Theory of Solvency Regulation in the Property Casualty Insurance Industry; Cambridge ED: Boston, MA, USA, 1981. [Google Scholar]
- Park, S.C.; Tokutsune, Y. Do japanese policyholders care about insurers’ credit quality? Geneva Pap. Risk Insur.—Issues Pract. 2013, 38, 1–21. [Google Scholar] [CrossRef]
- Cummins, J.D.; Harrington, S.; Niehaus, G. An economic overview of risk-based capital requirements for the property–liability insurance industry. J. Insur. Regul. 1994, 11, 427–447. [Google Scholar]
- Doff, R. A critical analysis of the solvency II proposals. Geneva Pap. Risk Insur.—Issues Pract. 2008, 33, 193–206. [Google Scholar] [CrossRef] [Green Version]
- Holzmüller, I. The United States RBC standards, solvency II and the Swiss solvency test: A comparative assessment. Geneva Pap. Risk Insur.—Issues Pract. 2009, 34, 56–77. [Google Scholar] [CrossRef]
- Garayeta, A.; De la Peña, J.I. Looking for a global standard of solvency for the insurance industry: Pros and cons in three systems. Transform. Bus. Econ. 2017, 16, 55–75. [Google Scholar]
- Fung, D.W.H.; Jou, D.; Shao, A.J.; Yeh, J.J.H. The china risk-oriented solvency system: A comparative assessment with other risk-based supervisory frameworks. Geneva Pap. Risk Insur.—Issues Pract. 2018, 43, 16–36. [Google Scholar] [CrossRef]
- Swiss Re. World Insurance in 2019: Solid, But Mature Life Markets Weigh on Growth. Sigma, No.3. 2019. Available online: http://www.swissre.com/sigma/ (accessed on 30 May 2021).
- Swiss Re. World Insurance in 2006: Moderate Premium Growth, Attractive Profitability. Sigma, No.5. 2006. Available online: http://www.swissre.com/sigma/ (accessed on 28 February 2021).
- Swiss Re. World Insurance in 2007: Premiums Back to “Life”. Sigma, No.4. 2007. Available online: http://www.swissre.com/sigma/ (accessed on 28 February 2021).
- Swiss Re. Swiss Re. World Insurance in 2008: Emerging Markets Leading the Way. Sigma, No.3. 2008. Available online: http://www.swissre.com/sigma/ (accessed on 28 February 2021).
- Swiss Re. World Insurance in 2009: Life Premiums Fall in the Industrialised Countries—Strong Growth in the Emerging Economies. Sigma, No.3. 2009. Available online: http://www.swissre.com/sigma/ (accessed on 28 February 2021).
- Swiss Re. World Insurance in 2010: Premiums Dipped but Industry Capital Improved. Sigma, No.2. 2010. Available online: http://www.swissre.com/sigma/ (accessed on 28 February 2021).
- Swiss Re. World Insurance in 2011: Premiums Back to Growth—Capital Increase. Sigma, No.2. 2011. Available online: http://www.swissre.com/sigma/ (accessed on 28 February 2021).
- Swiss Re. World Insurance in 2012: Non-Life Ready for Take-Off. Sigma, No.3. 2012. Available online: http://www.swissre.com/sigma/ (accessed on 28 February 2021).
- Swiss Re. World Insurance in 2012: Progressing on the Long and Winding Road to Recovery. Sigma 2013, No.3. 2013. Available online: http://www.swissre.com/sigma/ (accessed on 30 May 2021).
- Swiss Re. World Insurance in 2013: Steering towards Recovery. Sigma, No 3. 2014. Available online: http://www.swissre.com/sigma/ (accessed on 30 May 2021).
- Swiss Re. World Insurance in 2015: Back to life. Sigma, No.4. 2015. Available online: http://www.swissre.com/sigma/ (accessed on 30 May 2021).
- Swiss Re. World Insurance in 2016: Steady Growth amid Regional Disparities. Sigma, No.3. 2016. Available online: http://www.swissre.com/sigma/ (accessed on 30 May 2021).
- Swiss Re. World Insurance in 2017: The China Growth Engine Steams Ahead. Sigma, No.3. 2017. Available online: http://www.swissre.com/sigma/ (accessed on 30 May 2021).
- Swiss Re. World Insurance in 2018: Solid, But Mature Life Markets Weigh on Growth. Sigma, No.3. 2018. Available online: http://www.swissre.com/sigma/ (accessed on 30 May 2021).
- Fung, B. The demand and need for transparency and disclosure in corporate governance. Univ. J. Manag. 2014, 2, 72–80. [Google Scholar] [CrossRef]
- Orzes, G.; Moretto, A.M.; Moro, M.; Rossi, M.; Sartor, M.; Caniato, F.; Nassimbeni, G. The impact of the United Nations global compact on firm performance: A longitudinal analysis. Int. J. Prod. Econ. 2020, 227, 107664. [Google Scholar] [CrossRef]
- EC. Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the Taking-Up and Pursuit of the Business of Insurance and Reinsurance (Solvency II); European Commission: Brussel, Belgium, 2019. [Google Scholar]
- Eling, M.; Schmeiser, H.; Schmit, J.T. The solvency II process: Overview and critical analysis. Risk Manag. Insur. Rev. 2007, 10, 69–85. [Google Scholar] [CrossRef] [Green Version]
- Stein, R.W. Are you ready for Solvency II? Bests Rev. 2006, 106, 88. [Google Scholar]
- Tarantino, A. Globalization efforts to improve internal controls. Account. Tod. 2005, 19, 37. [Google Scholar]
- Hernández Barros, R.; Martínez Torre-Enciso, M.I. Capital assessment of operational risk for the solvency of health insurance companies. J. Operat. Risk 2012, 7, 43–65. [Google Scholar] [CrossRef]
- EC. The Draft Second wave calls for Advice from CEIOPS and Stakeholder Consultation on Solvency II; Markt/2515/04, Working Paper; European Commission: Brussels, Belgium, 2004. [Google Scholar]
- Powers, M.R. A theory of risk, return and solvency. Insur Math Econ. 1995, 17, 101–118. [Google Scholar] [CrossRef]
- AAA. Joint Report on SMI Project: 1–90; American Academy of Actuaries: Washington, DC, USA, 2011; Available online: http://www.actuary.org/content/joint-report-smi-project-0 (accessed on 30 May 2021).
- NAIC. Capital Requirements Governance & Risk Management; NAIC: 1–10. 2012; National Association of Insurance Commissioners: Kansas, MO, USA, 2012. [Google Scholar]
- Pottier, S.W.; Sommer, D.W. The effectiveness of public and private sector summary risk measures in predicting insurer insolvencies. J. Financial Serv. Res. 2002, 21, 101–116. [Google Scholar] [CrossRef]
- AG. Insurance Act 1973 N° 76; 1976, Compilation N° 55; Australian Government: Canberra, Australian, 1973. [Google Scholar]
- PwC. Insurance Facts and Figures; Asian Region; PriceWaterhouseCoopers: Barangaroo, Australia, 2013. [Google Scholar]
- APRA. Life Insurance (Prudential Standard) Determination N°8 2012; Prudential Standard LPS 100 Solvency Standard; Australian Prudential Regulation Authority: Sydney, Australia. 2012. Available online: https://www.apra.gov.au/sites/default/files/120912_LAGIC_letter_life_insurance_temporary_solvency_standard_0.pdf (accessed on 18 May 2022).
- APRA. Life Insurance (Prudential Standard) Determination N°2 2012; Prudential Standard LPS 110 Capital Adequacy. Australian Prudential Regulation Authority: Sydney, Australia. 2012. Available online: https://jade.io/article/846159?at.hl=Life++Insurance+(prudential+standard)+determination+No+2+of+2012. (accessed on 18 May 2022).
- APRA. Life Insurance (Prudential Standard) Determination N°7 2012; Prudential Standard LPS 118 Capital Adequacy: Operational Risk Charge. Australian Prudential Regulation Authority: Sydney, Australia. 2012. Available online: https://jade.io/article/846154?at.hl=Life++Insurance+(prudential+standard)+determination+No+7+of+2012. (accessed on 18 May 2022).
- CNSP. Resolução CNSP n° 302. 2013; Provision on Minimum Capital Requirement for Authorisation and Operation and Solvency Regularisation Scheme for Insurance Companies, Open-End Supplementary Pension Fund Institutions, Capitalisation Societies and Local Reinsurers. Conselho Nacional De Seguros Privados: Brasilia, Brazil, 2013.
- CNSP. CNSP n° 321. 2015; Provides for Technical Provisions, Assets That Reduce the Need to Cover Technical Provisions, Risk Capital Based on Subscription, Credit, Operational and Market Risks, Adjusted Net Equity, Minimum Capital Required, Solvency Regularization Plan, Retention Limits, Criteria for Investments, Accounting Standards, Accounting Audit and Independent Actuarial Audit and Audit Committee for Insurance Companies, Open Complementary Pension Fund Entities, Capitalization Companies and Reinsurers. Conselho Nacional De Seguros Privados: Brasilia, Brazil, 2015.
- CNSP. Resolução CNSP n° 343 2016 26 de Dezembro; Conselho Nacional De Seguros Privados: Brasilia, Brazil, 26 December 2016.
- FSB. Solvency Assessment and Management (SAM) Roadmap; Financial Services Board: Pretoria, South Africa, November 2010. [Google Scholar]
- Van Rossum, A. Regulation and insurance economics. Geneva Pap. Risk Insur.—Issues Pr. 2005, 30, 156–177. [Google Scholar] [CrossRef]
- Ashby, S.P.; Sharma, P.; McDonnel, W. Lessons About Risk: Analyzing the Causal Chain of Insurance Company Failure; Working Paper; Financial Services Authority: London, UK, 2003. [Google Scholar]
- Sharma, P. Prudential Supervision of Insurance Undertaking. In Conference of Insurance Supervisory Services of Member states of the European Union. DT/UK/232/02/REV6: Paris, France. December 2002. Available online: https://www.knf.gov.pl/knf/pl/komponenty/img/Prudential_supervision_of_insurance_undertakings_18431.pdf (accessed on 18 May 2022).
- Artzner, P.; Eisele, K.-T. Supervisory insurance accounting. Mathematics for provision and solvency capital requirements. Astin Bull. 2010, 40, 569–585. [Google Scholar]
- IASB. International Accounting Standards Board Preliminary Views on Insurance Contracts; discussion paper, IASB; International Accounting Standards Board: London, UK, May 2007. [Google Scholar]
- IASB. International Finance Reporting Standards 17 Insurance Contracts; International Accounting Standards Board: London, UK, 2017. [Google Scholar]
- Trainar, P. The challenge of solvency reform for European insurers. Geneva Pap. Risk Insur.—Issues Pract. 2006, 31, 169–185. [Google Scholar] [CrossRef]
- Butt, M. Insurance, finance, solvency II and financial market interaction. Geneva Pap. Risk Insur.—Issues Pract. 2007, 32, 42–45. [Google Scholar] [CrossRef] [Green Version]
- Klein, R.W.; Wang, S. Catastrophe risk financing in the US and the EU: A comparative analysis of alternative regulatory approaches. J. Risk Insur. 2007, 76, 607–637. [Google Scholar] [CrossRef]
- Farny, D. Security of insurers: The American risk-based capital model versus the European model of solvability for property and casualty insurers. Geneva Pap. Risk Insur.—Issues Pract. 1997, 22, 69–75. [Google Scholar] [CrossRef]
- Linder, U.; Ronkainen, V. Solvency II: Towards a new insurance supervisory system in the EU. Scand. Actuar. J. 2004, 104, 462–474. [Google Scholar] [CrossRef]
- Vaughan, T.M. Financial stability and insurance supervision: The future of prudential supervision. Geneva Pap. Risk Insur.—Issues Pract. 2004, 29, 258–272. [Google Scholar] [CrossRef]
- Nebel, R. Regulations as a source of systemic risk: The need for economic impact analysis. Geneva Pap. Risk Insur.—Issues Pract. 2004, 29, 273–283. [Google Scholar] [CrossRef]
- Liebwein, P. Risk models for capital adequacy: Applications in the context of solvency II and beyond. Geneva Pap. Risk Insur.—Issues Pract. 2006, 31, 528–550. [Google Scholar] [CrossRef]
- Ronkainen, V.; Koskinen, L.; Berglund, R. Topical modelling issues in Solvency II. Scand. Actuar. J. 2007, 2007, 135–146. [Google Scholar]
- Kuritzkes, A.; Schuermann, T. What we know, don’t know and can’t know about bank risk: A view from the trenches. In The Known, the Unknown and the Unknowable in Financial Risk Management: Measurement and Theory Advancing Practice; Diebold, F.X., Herring, R.J., Eds.; Princeton University Press: Princeton, NJ, USA, 2006. [Google Scholar]
- IAA. A Global Framework for Insurer Solvency Assessment, Research Report of the Insurer Solvency Assessment Working Party; International Actuarial Association: Ottawa, ON, Canada, 2004. [Google Scholar]
- IAIS. Insurance core Principles and Methodology; International Association of Insurance Supervisors: Basel, The Swizerland, 2003. [Google Scholar]
- Adams, M.B.; Tower, G.D. Theories of regulation: Some reflections on the statutory supervision of insurance companies in anglo-american countries. Geneva Pap. Risk Insur.—Issues Pract. 1994, 19, 156–177. [Google Scholar] [CrossRef]
- Höring, D. Will solvency II market risk requirements bite? The impact of solvency II on insurers’ asset allocation. Geneva Pap. Risk Insur.—Issues Pr. 2012, 38, 250–273. [Google Scholar] [CrossRef]
- NAIC. NAIC. NAIC White Paper. In The U.S. National State-Based System of Insurance Financial Regulation and the Solvency Modernization Initiative; National Association of Insurance Commissioners: Kansas, MO, USA, 2013. [Google Scholar]
- Chan, B.L.; Marques, F.T. Impacts of the regulatory model for market risk capital: Application in a special savings company, an insurance company, and a pension fund. Rev. Contab. E Financ. 2017, 28, 465–477. [Google Scholar] [CrossRef]
- Cafasso, P.A.L.; Chela, J.L.; Kimura, H. Market risk-based capital for Brazilian insurance companies: A stochastic approach. Futur. Bus. J. 2018, 4, 206–218. [Google Scholar] [CrossRef]
- FSB. In Solvency Assessment and Management Pillar I—Subcommittee Capital Requirements Task Group Discussion Document 78; Non-life Underwriting Risk: Structure and Calibration; Financial Services Board: Pretoria, South Africa, 28 November 2016.
- Artzner, P.; Delbaen, F.; Eber, J.M.; Heath, D. Coherent measures of risk. Math Financ. 1999, 9, 203–228. [Google Scholar] [CrossRef]
- NAIC. Risk-Based Capital General Overview, II; National Association of Insurance Commissioners: Kansas, MO, USA, 2009. [Google Scholar]
- Grabowski, H.; Viscusi, W.K.; Evants, W.K. Price and availability tradeoffs of automobile insurance regulation. J. Risk Insur. 1989, 56, 275–299. [Google Scholar] [CrossRef]
- UNEP, FI. Sustainable Insurance the Emerging Agenda for Supervisors and Regulators. 2017. Available online: http://www.unepfi.org/psi/wp-content/uploads/2017/08/Sustainable_Insurance_The_Emerging_Agenda.pdf (accessed on 4 April 2022).
- Majewska, A. Sustainable insurance. In Ziolo, M. Finance and Sustainable Development: Designing Sustainable Financial Systems; Routledge: London, UK, 2020; pp. 79–98. [Google Scholar]
Environmental | Social | Governance |
---|---|---|
Climate change | Human rights | Board structure, size, diversity, skills and independence |
Renewable energy | Workplace health and safety | Executive pay |
Air, water or resource depletion/pollution | Human capital management/employee relations | Bribery and corruption |
Changes in land use | Diversity | Internal controls and risk management |
Controversial weapons |
Principle-Based Models | Rule-Based Models | |
---|---|---|
Definition | Responsibility delegated to each company [17] | Detailed set of rules [22] |
Feature | Freedom and flexibility | No change option |
Capital requirements and risk management | Integrated | Non-integrated |
Simple Formula | Complex Formula | |
---|---|---|
Favour | • Easy to explain, understand and use. | • Improves prediction [36]. |
Against | • It does not capture all the information [74]. • It does not observe inefficiencies in transparency [75]. | • Cost for insurer and regulator [30]. • It is difficult to analyse [28]: - The management of the company; - Effect on capital; - Market impact. |
Criterion | EU | US | China | Australia | Brazil | South Africa |
---|---|---|---|---|---|---|
1. Provides appropriate incentives | √√√ | √ | √ | √√√ | √√ | √√√ |
2. Risk-sensitive formula | √√√ | √ | √√√ | √√√ | √√ | √√√ |
3. Well-calibrated formula | √√√√ | √√ | √ | √√√√ | √√√ | √√√√ |
4.Identification of high insolvency costs | √√ | √ | √√ | √√√ | - | √√√ |
5. Economic values considered | √√√√ | √ | √√ | √√√√ | √√√√ | √√√ |
6. Avoid inaccurate information | √√ | √ | √√√ | √√√ | √ | √√√ |
7. Simple formula | √√√ | √√ | √√√ | √√√ | √√ | √√√ |
8. Crisis-appropriate structure | √√√ | √ | √√ | √√√ | √ | √√√ |
9. Evaluation of the management system | √√ | - | √√√√ | √√√√ | √ | √√√ |
10. Flexibility in adaptation | √√ | - | √√√√ | √√√ | √√ | √√ |
11. Strength of management and market transparency | √√√√ | - | √√√√ | √√√√ | √√ | √√√√ |
Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. |
© 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).
Share and Cite
Garayeta, A.; De la Peña, J.I.; Trigo, E. Towards a Global Solvency Model in the Insurance Market: A Qualitative Analysis. Sustainability 2022, 14, 6465. https://doi.org/10.3390/su14116465
Garayeta A, De la Peña JI, Trigo E. Towards a Global Solvency Model in the Insurance Market: A Qualitative Analysis. Sustainability. 2022; 14(11):6465. https://doi.org/10.3390/su14116465
Chicago/Turabian StyleGarayeta, Asier, J. Iñaki De la Peña, and Eduardo Trigo. 2022. "Towards a Global Solvency Model in the Insurance Market: A Qualitative Analysis" Sustainability 14, no. 11: 6465. https://doi.org/10.3390/su14116465
APA StyleGarayeta, A., De la Peña, J. I., & Trigo, E. (2022). Towards a Global Solvency Model in the Insurance Market: A Qualitative Analysis. Sustainability, 14(11), 6465. https://doi.org/10.3390/su14116465