In Asia-Pacific, the continuing migration towards risk-based-capital-type (RBC) regimes is likely to reveal capital needs among insurers, said Swiss Re?s latest sigma study.
Titled as ?Regulatory issues in insurance?, the study said although Asia weathered the financial crisis without major insurance insolvencies, regional regulators are aware of the need to shore up prudential supervision of insurance companies, particularly in regard to solvency standards.
The migration from Solvency I-type standards towards RBC regimes continues. At the same time, regulators have made various proposals to improve the resilience of current solvency systems. For example, the China Insurance Regulatory Commission has issued a draft regulation requiring property insurers to conduct ?dynamic solvency tests?; and the Financial Services Agency of Japan has circulated a tightened RBC standard for consultation. Not to mention that the Indian insurance regulator, Insurance Regulatory & Development Authority (Irda) has taken a host of measures for the sector in recent past, after winning the spat with turf war over Ulips over Indian stock market regulator, Sebi.
Clarence Wong, Swiss Re?s Chief Asia economist, said ?Asian regulators will continue to supplement exiting solvency regimes with various forward-looking criteria (for example risk-sensitivity analyses, scenarios and stress tests) to improve detection of potential solvency shortfalls. It is likely that insurers in Asia will face higher capital requirements after applying stress and scenario tests.? A major concern stemming from possible regulatory changes is that overly stringent capital requirements could force insurers to make investment decisions that are too conservative, which could lower policyholder returns.
From a macroeconomic point of view, such an investment shift would not be desirable for the economy as a whole as it lowers the amount of capital to finance growth, said Kurt Karl, Swiss Re?s Chief US economist and one of the authors of the study.