The Implications of Solvency II for U.S. Insurance Regulation

Networks Financial Institute Policy Brief No. 2009-PB-03

26 Pages Posted: 28 Feb 2009 Last revised: 8 Apr 2009

See all articles by Therese M. Vaughan

Therese M. Vaughan

Government of the State of Iowa - Iowa Insurance Division (IID)

Date Written: February 2009

Abstract

Much work has been done in recent years on the subject of insurance regulation and capital requirements, and the process of regulatory reform will continue. It behooves insurance supervisors to take a step back, revisit the underlying assumptions that have driven supervisory reform in the various sectors, and assess what implications, if any, their conclusions have for future work. The use of internal models to establish regulatory capital requirements cannot and should not disappear. However, they must be used appropriately, with recognition of their significant limitations. The optimal structure of insurance supervision is likely to be a combination of a rules-based and a principles-based approach. That is, internal models should be an adjunct to a rules-based capital requirement that establishes a floor for regulatory capital. Capital regulation is a necessary, but not sufficient, additional requirement for effective financial regulation. On-site examinations, offsite analysis of financial performance and trends, and frequent interaction with the regulated entity are equally important. Finally, current developments have demonstrated that market discipline cannot be relied on as a substitute for regulation and supervision. The optimal regulatory structure is one that encourages supervisors to take action when it is appropriate, and a system that incorporates duplicative regulatory oversight may advance that objective.

Suggested Citation

Vaughan, Therese M., The Implications of Solvency II for U.S. Insurance Regulation (February 2009). Networks Financial Institute Policy Brief No. 2009-PB-03. Available at SSRN: https://ssrn.com/abstract=1350539 or http://dx.doi.org/10.2139/ssrn.1350539

Therese M. Vaughan (Contact Author)

Government of the State of Iowa - Iowa Insurance Division (IID) ( email )

330 Maple St.
Des Moines, IA 50319-0065
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1,090
Abstract Views
3,969
rank
19,053
PlumX Metrics