Proportionality in the application of insurance solvency requirements

Since the 1990s, insurance authorities have increasingly been taking a risk-based approach to prudential regulation and supervision. In the process, the complexity of solvency requirements have increased significantly. Against this backdrop, some jurisdictions have taken a proportionate approach in applying such requirements. Under this type of regime, smaller or less complex insurers are eligible for simplified solvency rules, provided that the core prudential objectives of protecting policyholders' interests and maintaining financial stability are not compromised. Based on a survey of 16 insurance authorities, this paper describes how the authorities identify insurers that are eligible for simplified solvency rules and provide specific examples. This analysis provides insights on key issues that the relevant authorities may need to consider in adopting a proportionate approach to the application of solvency requirements.

JEL classification: G22, G28