| Insurance industry is one of the important sectors in a country's economy. It is the primary responsibility of insurance regulatory authority to keep insurance companies solvent. A serials of insolvencies happened to some large Japanese insurers in past few years have alerted us the solvencies of our country's insurers. As the entry to WTO is approaching, our insurance industry will soon face upon the 'equal competition, equal supervision'. Therefore, it is an important task to learn from foreign countries' regulatory rules and find one that suits our reality. Many developed countries have strengthened regulation for margin of solvency and relaxed control in product pricing. The 'European rule' and 'American rule' are two main methods to measure solvency margin by risk-based capital (hereinafter called RBC). Abundant literatures in our country have mentioned the detailed process to use these methods and concluded that 'European rule' is simpler and fitter for our country. In their discussions there is a lack of in-depth thoughts about its computation process. Although CIRC (China Insurance Regulatory Commission) has employed 'European rule' to measure solvency margin, 'American rule' is still worth studying for the fact that it is so far the most complete model to demonstrate the risks of insurers. Hence it is of some theoretical and practical significance to conduct a further study on American RBC rule. What this thesis wants to accomplish are as follows: the first one is to make a thorough review of the development history of solvency regulation in the United States and expound the underlying motives. The second one is to seek for the theory of RBC and some positive evidence of its performance in order to find its logic and practicability. The last one is to analyze pre-requisites for us to employ the RBC method and put forth some suggestions to perfect our regulation on insurers' solvency. The methodology of this dissertation is a copy of one of the methodologies commonly used in history study. That is to say, 'to discern changes, pursuit for reasons, and make comments' is the logic that is underpinning this paper.The main contents are structured into five chapters as follows:Chapter One is an introduction that mentions the significance, purpose, methodology and writing structure.Chapter Two consists of two parts. The first part deals with a review of evolution of insurance regulation in the US. In the past American insurance industry has experienced the regulation period of fixed minimum capital limit, financial ratios that includes IRIS (Insurance Regulation Information System) and FAST (Financial Analysis Surveillance Tracking), RBC rule. The RBC rule has been focused on and the whole process of its origination, designing, modification and perfecting has been detailed. The other part centers on three possible motives underlying its development. It shows that the deficiencies of both fixed minimum capital limit and financial ratios, the changes in operational environment in the last two decades and the willpower of NAIC (National Association of Insurance Commission) are the underlying forces to drive its evolution.Starting from the definition of capital structure Chapter Three makes a brief review of modern theories about capital and capital structure at the outset. From M&M proposition, through trading-off theory, to most updated information asymmetry theories, all theories themselves and their applicability in explaining insurers' capital structure have been discussed. The four branches of information asymmetry theories are signal theory, contract theory, pecking-order theory and agency cost theory. They all provide us with some new ideas about the nature of capital for insurance companies. Besides above qualitative research the latter part deals with a mathematical model that links the risk factors with capital requirements. Abandoning the traditional view of ruin probability this thesis uses EPD, namely expected policyholders' deficit, as a regulatory criteria. So long as the... |
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