Theoretical and Applied Economics (Mar 2018)
Comparative Assessment of Risk-Based Capital, Solvency II and Swiss Solvency Test
Abstract
The goal of this article is to provide an updated evaluation and comparative analysis of three insurance regulatory regimes: Risk-Based Capital applied in United States of America, Solvency II used in European Union and Swiss Solvency Test applied in Switzerland, considering the major revisions that have been made in recent years: Solvency Modernization Initiative in the RBC system, Solvency II implementation since January 1st, 2016 and some updates in the Swiss Solvency Test which were influenced by Solvency II. The results of research reveal that the RBC framework has been substantially improved by: operational risk implementation for all three RBC formula and catastrophe risk implementation in Property/Casualty RBC formula, Own Risk and Solvency Assessment (ORSA), Principle-Based Reserving (PBR) and seven Insurance Core Principles adoptation. RBC regime still remains a rules-based system which applies statutory accounting values and represents an “one size fits all” model for all insurance companies as it does not encourage the own internal models development. In contrast, Solvency II and the Swiss Solvency Test meet to a high degree level of satisfaction the criteria developed by Cummins et al. (1994) and Holzmuller (2009).
