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Article

Systemic Risk and Insurance Regulation

1
Department of Accounting and Finance, University of Bristol, Bristol BS8 1TH, UK
2
Banco Central del Uruguay, Montevideo 11100, Uruguay
*
Author to whom correspondence should be addressed.
The views in this paper are those of the authors and not of the Institutions to which they are affiliated.
Risks 2018, 6(3), 74; https://doi.org/10.3390/risks6030074
Received: 25 June 2018 / Revised: 19 July 2018 / Accepted: 25 July 2018 / Published: 27 July 2018
(This article belongs to the Special Issue Capital Requirement Evaluation under Solvency II framework)
This paper provides a rationale for the macro-prudential regulation of insurance companies, where capital requirements increase in their contribution to systemic risk. In the absence of systemic risk, the formal model in this paper predicts that optimal regulation may be implemented by capital regulation (similar to that observed in practice, e.g., Solvency II ) and by actuarially fair technical reserve. However, these instruments are not sufficient when insurance companies are exposed to systemic risk: prudential regulation should also add a systemic component to capital requirements that is non-decreasing in the firm’s exposure to systemic risk. Implementing the optimal policy implies separating insurance firms into two categories according to their exposure to systemic risk: those with relatively low exposure should be eligible for bailouts, while those with high exposure should not benefit from public support if a systemic event occurs. View Full-Text
Keywords: insurance companies; systemic risk; optimal regulation insurance companies; systemic risk; optimal regulation
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MDPI and ACS Style

Gómez, F.; Ponce, J. Systemic Risk and Insurance Regulation . Risks 2018, 6, 74. https://doi.org/10.3390/risks6030074

AMA Style

Gómez F, Ponce J. Systemic Risk and Insurance Regulation . Risks. 2018; 6(3):74. https://doi.org/10.3390/risks6030074

Chicago/Turabian Style

Gómez, Fabiana, and Jorge Ponce. 2018. "Systemic Risk and Insurance Regulation " Risks 6, no. 3: 74. https://doi.org/10.3390/risks6030074

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