The Impact of Solvency II on Insurance Market Competition - An Economic Assessment

The purpose of this article is a qualitative economic impact assessment of the SolvencyII proposals. In a first step, we elaborate the economic foundations of insurancemarket regulation. Based on three sources of market failure, we derive economicobjectives of regulatory intervention. In our impact analysis we examine towhat extent the proposed Solvency II rules will be able to achieve these objectives.The rules proposed in the Solvency II project will alleviate economic effectsof market distortions to a certain degree, but further analysis is necessary. This paper elaborates a need for further analysis of regulatory measures and offers valuable insights into the obligatory impact assessment of the new Solvency II rules. Our analysis finds that the impact of a minimum solvency capital on insurance market competition needs further examination. Furthermore, the economic justification for insurance market regulation needs to be evaluated in detail.