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The Swiss Solvency Test and its Market Implications

Author

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  • Martin Eling

    (Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, St. Gallen 9010, Switzerland)

  • Nadine Gatzert

    (Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, St. Gallen 9010, Switzerland)

  • Hato Schmeiser

    (Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, St. Gallen 9010, Switzerland)

Abstract

In this paper, we first discuss the characteristics and major benefits of the Swiss risk-based capital standards for insurance companies (Swiss Solvency Test), introduced in 2006. As the insurance industry is one of the largest institutional investors in Switzerland, changes to its asset and liability management as a result of the new regulatory framework could have striking economic effects. Thus, we further examine significant market implications for the Swiss economy due to possible changes in the asset and liability management of Swiss insurance companies. We investigate resulting effects on the Swiss capital market, focusing on bond, real estate, stock, foreign exchange markets, and the situation in case of a capital market crisis. Furthermore, we analyze potential consequences to corporate financing and product design. Most of the considered consequences result from the transition of past (in principle, not risk-based) supervision to risk-based supervision and can thus be generalized to other supervision systems, in particular Solvency II. The Geneva Papers (2008) 33, 418–439. doi:10.1057/gpp.2008.20

Suggested Citation

  • Martin Eling & Nadine Gatzert & Hato Schmeiser, 2008. "The Swiss Solvency Test and its Market Implications," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 33(3), pages 418-439, July.
    • Handle: RePEc:pal:gpprii:v:33:y:2008:i:3:p:418-439
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    Citations

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    Cited by:

    1. Eling, Martin & Pankoke, David, 2012. "Systemic Risk in the Insurance Sector – What Do We Know?," Working Papers on Finance 1222, University of St. Gallen, School of Finance.
    2. Martin Eling & David Pankoke, 2016. "Costs and Benefits of Financial Regulation: An Empirical Assessment for Insurance Companies," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 41(4), pages 529-554, October.
    3. Benjamin Lorent, 2010. "Insurance Solvency Regulation: Regulatory Approaches Compared," Working Papers CEB 10-041, ULB -- Universite Libre de Bruxelles.
    4. Boonen, Tim J. & Tan, Ken Seng & Zhuang, Sheng Chao, 2021. "Optimal reinsurance with multiple reinsurers: Competitive pricing and coalition stability," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 302-319.
    5. Liu, Shuyan & Jia, Ruo & Zhao, Yulong & Sun, Qixiang, 2019. "Global consistent or market-oriented? A quantitative assessment of RBC standards, solvency II, and C-ROSS," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    6. Martin Eling & David Antonius Pankoke, 2016. "Systemic Risk in the Insurance Sector: A Review and Directions for Future Research," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 19(2), pages 249-284, September.
    7. Höring, Dirk, 2012. "Will Solvency II market risk requirements bite? The impact of Solvency II on insurers' asset allocation," ICIR Working Paper Series 11/12, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    8. Susanna Levantesi & Massimiliano Menzietti, 2017. "Maximum Market Price of Longevity Risk under Solvency Regimes: The Case of Solvency II," Risks, MDPI, vol. 5(2), pages 1-21, May.
    9. Boonen, Tim J., 2017. "Risk Redistribution Games With Dual Utilities," ASTIN Bulletin, Cambridge University Press, vol. 47(1), pages 303-329, January.

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