Regulations and Soundness of Insurance Firms: International Evidence
39 Pages Posted: 8 May 2010
Date Written: November 16, 2009
Abstract
This paper provides the first cross-country study on the impact of regulations on the soundness of insurance firms, using data on over 1,700 insurance firms operating in 46 countries. We find that the power of the supervisory authorities and regulations related to technical provisions have an impact on soundness that is robust to controls for firm-specific and country-specific factors. Furthermore, the data provide evidence of a relationship between regulatory principles in investment management and soundness. In contrast, we find that the decision to adopt a regulatory framework of detailed regulations on admissible assets versus a prudent person rule or a combination of both systems, and corporate governance and internal control rules do not influence soundness. Similarly, capital requirements do not appear to have a robust impact on soundness.
Keywords: Insurance, regulation, solvency, soundness
JEL Classification: G22, G28
Suggested Citation: Suggested Citation
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