Future Financial Frameworks – Essentials for Risk-Based Capital Management

Cummins et al. (1994) provide a conceptual framework for policymakers to use in analysing risk-based capital systems. Based on their framework, this article provides an overview and critical analysis of risk-based capital requirements, with a focus on property/ casualty insurance, as implemented in three regions of the world (the United States, the European Union and Switzerland). To integrate the dynamics of the insurance and capital markets and recent developments in regulation we add four new criteria to the original framework of Cummins et al. The analysis reveals various shortcomings of the standards used in the United States and indicates a need for reform in that country. In contrast, the Swiss standards and the framework planned for the European Union perform generally well. It is, however, not yet possible to identify which of these two systems is superior, as empirical evidence on their effectiveness in protecting policyholders is still lacking.

Section: Overview Of Criteria Cataloguementioning

confidence: 99%

The United States RBC Standards, Solvency II and the Swiss Solvency Test: A Comparative Assessment

Holzmüller

2008

Risk Models for Capital Adequacy: Applications in the Context of Solvency II and Beyond

Liebwein¹

2006

In the context of the quantitative requirements under pillar 1 of Solvency II, internal risk models quantify a specific company's risk position, that is, measure the risk capital it requires. Because the individual insurance company's situation is modelled, its risk landscape is reflected more accurately than if a standard model approach were used. A brief case study indicates that internal risk models should be used not only to fulfill regulatory requirements, they have to and they do feature more benefits: risk models foster risk management processes; therefore, they are capable of supporting risk-based business decisions. Finally, they constitute a kernel for any risk-based performance measurement framework.

Finite Reinsurance: How does it Concern Supervisors? Some Efficiency Considerations in the Light of Prevailing Regulatory Aims

Dahlen

2007

Finite reinsurance transactions attracted the attention of insurance supervisors and beyond recently. This paper considers the resulting and ongoing discussion concerning the regulatory environment for finite reinsurance transactions. Consumer protection and financial stability are reflected in the light of cost-benefit considerations as criteria for the further design of finite reinsurance-related regulation and supervision. At the same time, some of the forces that influence the shaping of regulation and supervision are described. This article concludes that few, concise and, in an ideal case, worldwide applicable rules and principles are best suited to guide the development within the field of finite reinsurance. Such rules and principles would most probably have a positive impact on consumer protection and financial stability. This article therefore supports the IAIS intention to consider the topic of finite reinsurance further.