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Risk Measures and Capital Requirements: A Critique of the Solvency II Approach

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  • Alberto Floreani

    (Department of Economics and Business Administration, Faculty of Banking, Finance and Insurance Sciences, Università Cattolica del Sacro Cuore, Largo Gemelli, 1, Milano 20123, Italy.)

Abstract

In this paper the Solvency II VaR-based capital requirement is analysed and discussed. The new European risk-based system of prudential regulation for insurers could in fact increase, and not decrease, the fragility of the insurance industry. More specifically, the VaR capital requirement exposes insurance companies to a potentially huge systemic effect, as the bigger/better diversified insurers have high default probabilities in case of market shortfalls. This paper shall suggest and discuss some adjustments to the current Solvency II framework.

Suggested Citation

  • Alberto Floreani, 2013. "Risk Measures and Capital Requirements: A Critique of the Solvency II Approach," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 38(2), pages 189-212, April.
  • Handle: RePEc:pal:gpprii:v:38:y:2013:i:2:p:189-212
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    Cited by:

    1. Lee, Hangsuck & Choi, Hyung-Suk & Ha, Hongjun, 2020. "A sharing mechanism of investment outcome for interest-sensitive life insurance products," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    2. Meier, Samira & Rodriguez Gonzalez, Miguel & Kunze, Frederik, 2021. "The global financial crisis, the EMU sovereign debt crisis and international financial regulation: lessons from a systematic literature review," International Review of Law and Economics, Elsevier, vol. 65(C).
    3. Vsevolod Malinovskii, 2020. "Value-at-Risk substitute for non-ruin capital is fallacious and redundant," Papers 2005.05428, arXiv.org.
    4. Laudagé, Christian & Sass, Jörn & Wenzel, Jörg, 2022. "Combining multi-asset and intrinsic risk measures," Insurance: Mathematics and Economics, Elsevier, vol. 106(C), pages 254-269.
    5. Laurens Swinkels & David Blitz & Winfried Hallerbach & Pim Vliet, 2018. "Equity Solvency Capital Requirements - What Institutional Regulation Can Learn from Private Investor Regulation," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(4), pages 633-652, October.

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