FSI Publishes Paper on Proportionality in Insurance Solvency Rules
FSI published a paper on proportionality in the application of insurance solvency requirements. This paper is based on a survey of 16 insurance authorities, of which eight have adopted a proportionate approach, thus allowing certain insurers to apply simplified regulatory requirements. The paper describes how the authorities identify insurers that are eligible for simplified solvency rules and also provides specific examples. This analysis provides insights on the key issues that the relevant authorities may need to consider in adopting a proportionate approach to the application of solvency requirements.
The paper notes that insurance authorities have increasingly been taking a risk-based approach to prudential regulation and supervision, since the 1990s. In the process, the complexity of solvency requirements has increased significantly. Against this backdrop, some jurisdictions have taken a proportionate approach in applying such requirements. Under this type of regime, smaller or less complex insurers are eligible for simplified solvency rules, provided that the core prudential objectives of protecting policyholders' interests and maintaining financial stability are not compromised.
To develop a sound proportionate solvency framework, insurance regulators need to consider several critical issues. These include the extent to which simplified regulatory requirements may weaken incentives for insurers to manage their business properly, the trade-off between simplification and risk-sensitivity, and the absolute minimum level of complexity that may be needed to achieve prudential objectives. In addition, insurers should not be able to cherry-pick between the standard and proportionate requirements.
Related Links
Keywords: International, Insurance, Solvency Requirements, Proportionality, Regulatory Requirements, Solvency II, FSI
Featured Experts
Paul McCarney
Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers
Brian Robinson
Actuary; risk management specialist; corporate and capital modelling expert
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.