Transformations  in
Business & Economics

LOOKING FOR A GLOBAL STANDARD OF SOLVENCY IN THE INSURANCE INDUSTRY: PROS AND CONS OF THREE SYSTEMS
Asier Garayeta-Bajo, J. Inaki De La Pena

ABSTRACT. The determination of the optimal capital of insurance companies is a constant issue globally. In the European Union (EU) this process is guided by the Solvency II Directive, while in the United States (US) the need to review Risk Based Capital (RBC) has been addressed via the Solvency Modernisation Initiative (SMI) set up by the National Association of Insurance Commissioners (NAIC) in 2013. Switzerland has also carried out its own Swiss Solvency Test (SST) and Japan, being the biggest insurance market in Asia, applies a revised standard for calculating the solvency margin ratio since 2012 . Although the above-mentioned are the world's most solvent systems, all of them view the same target differently, therefore the aim of this paper is to compare them in accordance with the seven hypotheses formulated by Cummins et al. (1994) to check if they are well-designed control ones serving to decrease the number of insolvencies

KEYWORDS:  regulatory risk, insurance, capital structure, RBC, SST, Solvency II, SMI.

JEL classification:  G3, G22, G28.