Inconsistent Capital Regulation
We use the transition in January 2016 from the Solvency I regulatory regime, which was heterogeneous across countries in the European Union, to the Solvency II regime, which harmonizes insurance regulation across countries, to understand the impact of heterogeneous insurance regulation on cross-country variation in product market outcomes and financial stability. Using variation across insurers within the same country, and across countries for the same insurance group, we show that market risk insurance via guaranteed-return products is more prevalent in countries with more lax capital requirements. Moreover, we show that the interest rate exposure of insurance companies increased as interest rates declined in recent years, and this effect is more pronounced for companies with a larger share of guaranteed return products. We conclude by discussing potential determinants of differences in cross-country regulation related to pension systems, salient historical events such as insurance company failures, and political incentives to stimulate the growth of insurance markets
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Prof. Dr. Anastasia Kartasheva
Tel.: +41 71 224 79 95
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