The Implications of Financial Regulatory Reform for the Insurance Industry
Joint Report with IIF
International policy makers are developing new regulatory regimes aimed at ensuring enhanced financial stability in the post-financial crisis world. While the objectives of each of these regulatory initiatives may be clear, their interdependencies are not. Intricacies of new regulations or inconsistencies between regimes could adversely impact risk management practices at both insurers and banks and cause distortions in the market. Our new paper, The Implications of Financial Regulatory Reform for the Insurance Industry – produced by collaboration between Oliver Wyman and the Institute of International Finance with a working group of global insurance executives – explores these issues and highlights incentives that these differences appear to provide.
Of primary focus in the report is comparison of Solvency II for insurers in the European Union and Basel III for international banks. We also draw parallels with elements of the NAIC RBC framework for US insurers. Due to the global markets for capital and risk, however, impacts will be felt in various ways by nearly all insurers, regardless of their domicile.
The paper highlights several key areas, including potential effects of differing capital charges on asset allocation and risk management and the strong embedded incentives to own sovereign debt.
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