The Groupe Consultatif Actuariel Européen has published a paper titled “Comparison of the Regulatory Approach in Insurance and Banking in the Context of Solvency II”. The principal author is Mairead O’Shea, a Fellow of the Society of Actuaries in Ireland.
Risk‐based financial supervision is different for Banking and Insurance. Business models are different, risks are different and thus regulatory measures are also different. But this does not mean that systems cannot learn from each other.
This paper identifies the key differences between Banking and Insurance regulation which are, inter alia, that
- Solvency II is broader than Basel II/III
- Mismatch and funding risk is appreciated more in Solvency II than in Basel II/III
- The Solvency II capital definitions appear to be much more stringent than the corresponding Basel II/III definitions.
The twin towers of banking are capital and funding, whereas the twin towers of insurance are capital and risk. As a strategy in the current European crisis, applying actuarial financial management techniques to banking could be a key consideration in increasing confidence in the ability of banks to realistically quantify and judge all risks.”