Assessing the impact of reinsurance on insurers' solvency under different regulatory regimes

This paper aims to identify discrepancies between an economic risk-based view of insurers' solvency net of reinsurance, and the regulatory treatment of reinsurance under three most common regulatory solvency regimes, Solvency I, Solvency II and Swiss Solvency Test (SST). This exercise is intended to pinpoint potential shortfalls in the regulatory treatment of reinsurance for the purposes of solvency calculations. The paper also makes practical recommendations on how to best utilize reinsurance for the purposes of risk management and increasing profitability, which may be of interest for insurers and insurance regulators. It provides examples of reinsurance scenarios that test the effects of the most common forms of reinsurance on the solvency position of a hypothetical insurance company that specializes in writing catastrophe risk under different regulatory regimes. The paper provides a list of conclusions that were drawn, based on the presented simulations of reinsurance protection for a given portfolio of catastrophe risk under each of the three different solvency regimes.