Solvency II Is Not Risk-Based—Could It Be? Evidence from Non-Life Calibrations. Issue 3 (3rd July 2018)

• Record Type: Journal Article
• Authors: Frezal, Sylvestre
• Is Part Of: North American actuarial journal. Volume 22:Issue 3(2018)
• Page Start: 365
• Page End: 379
• Publication Date: 2018-07-03
• Subjects: Life insurance -- Research -- North America -- Periodicals; Actuarial science -- North America -- Periodicals; Web sites; Electronic journals; 368.010973
• DOI: 10.1080/10920277.2017.1421473
• Languages: English
• ISSNs: 2325-0453

Abstract

Abstract : Risk-based prudential regulations are spreading. For example, the capital requirements of Solvency II are considered to be founded on a risk measure. We focus on premium and reserving risks, which represent 40% of capital requirements for non-life insurance companies in Europe, and draw on internal robustness tests to demonstrate that these measures are unreliable. There are three possible explanations for this lack of reliability: a political economy factor, an idiosyncratic factor, and an epistemological barrier. We examine each of these and evaluate their significance, thus casting doubts on the feasibility of such ambition and providing insights to adapt the design of any prudential regulation intended to be risk-based to such pitfalls.