Solvency Regulation—An Assessment of Basel III for Banks and of Planned Solvency III for Insurers

Basel III, regulating the solvency of banks, is to be fully implemented by 2027 while Solvency III directed at insurers being prepared. In view past experience, it will closely modelled after III. This raises two questions. (i) Will and more successful than their predecessors? (ii) Is appropriate continue banks in same way? The first question motivated an earlier finding that I II risked inducing rather less risk-taking which also holds for w.r.t. insurers. methodology applied was determine slope endogenous perceived efficiency frontier (EPEF) (μ^,σ^)-space derived from banks’ insurers’ optimal adjustment exogenous changes, expected returns dμ¯ volatility dσ¯ on capital market. Both neglected impact these developments EPEF. neglect had effect steepening EPEF, causing senior management opt increased reduced value σ^, hence a lower level. issue resolved (Principle 5), requires take market into account formulation business strategies designed ensure solvency. combination with requirements, this shown result EPEF risk exposure. However, planned may cause highly capitalized insurance companies become steeper, concomitant decrease increase second question, concerning appropriateness uniformity regulation insurers, arises because parameters determining respective are found crucially differ. Therefore, norms creates mistaken regulatory focus.