Exploratory Analysis of Solvency Regulations in the Three Main Latin American Insurance Markets

Abstract

Purpose

This paper analyses the suitability of different regulatory systems for the solvency of insurance companies.

Theoretical framework

The insurance sector is in the midst of a global process of change. There are different systems and each of them faces insolvency in a different way, although they all provide optimal capital with which to deal with undesirable situations. This study focuses on Latin America, where the sector is becoming increasingly important. Brazil, Mexico and Argentina are the most relevant countries in terms of annual premium volume.

Design/methodology/approach

This paper uses the structure designed by Cummins et al. (1994) to check whether the regulations are suitable for reducing the number of insolvencies.

Findings

The review of the regulations in these countries shows that they have all been reformed, following the trend in the insurance sector over the last decade, although the degree of legislative development is greater in some than in others. The involvement of the system must take place at two levels: on the part of the insurer, with the periodic self-assessment of risks; and on the part of the regulator, with the periodic review of the system as a whole.

Practical & social implications of research

This paper contributes to the literature by proposing the lines of work necessary for the globalisation of insurance sector regulation in Latin America.

Originality/value

The main conclusion is that regulatory systems must increase their qualitative approach to risk management, not only in the number of calculations but also by increasing governance, transparency and risk control.

Keywords:
Insurance supervision; capital requirements; risk management; solvency; insurance stability