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This paper compares solvency capital requirements under Solvency I and Solvency II for a sample mid-size insurance portfolio. According to the results of a study, changing the solvency capital regime from Solvency I to Solvency II will lead to a substantial additional solvency capital requirement that might represent a heavy burden for the company's shareholders. One way to reduce the capital requirement under Solvency II is to increase reinsurance protection, which will reduce the net retained risk exposure and hence also the solvency capital requirement. Therefore, this paper proposes an extended reinsurance structure that, under Solvency II, brings the capital requirement back to the level of that required under Solvency I. In a step-by-step approach, the paper demonstrates the extent of solvency relief attained by the insurer by applying different possible adjustments in the reinsurance structure. To evaluate the efficiency of reinsurance as the solvency capital relief instrument, the authors introduce a cost-of-capital based approach, which puts the achieved capital relief in relation to the costs of extending the reinsurance protection. This approach allows a direct comparison of reinsurance as a capital relief instrument with debt instruments available in the capital market. With the help of the introduced approach, the authors show that the best capital relief efficiency under all examined reinsurance alternatives is achieved when a financial quota share contract is chosen for proportional reinsurance.

Banking Law --- Capital Requirement --- Debt Markets --- Finance and Financial Sector Development --- Hazard Risk Management --- Insurance & Risk Mitigation --- Insurance Law --- Insurance Portfolio --- Non-Life --- Private Sector Development --- Reinsurance --- Risk Management --- Solvency I --- Solvency II

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This Special Issue covers the topic of timely vital risk management - systemic risk - from many important perspectives. It includes novel and scientific approaches from the network with topological indicators on systemic risk, community analysis of the global financial system, welfare analysis of capital insurance and the impact of capital requirement, risk measures, and optimal portfolio and optimal reinsurance under risk constraint. Most articles study the financial sector and insurance companies after the financial crisis of 2008–2009 circa ten years prior. The COVID-19 global pandemic in 2020 has caused similar or even greater challenges for the entire economy. Therefore, this Special Issue will be useful for anyone interested in systemic risk management.

optimal reinsurance --- general risk measure --- risk sharing --- systemic risk --- capital insurance --- welfare --- equilibrium --- conditional value-at-risk --- mean-CVaR portfolio optimization --- risk minimization --- Neyman–Pearson problem --- interconnectedness --- financial conglomerate --- contagion --- capital requirement for premium risk --- collective risk model --- reinsurance strategies --- Solvency II --- community structure --- complex networks --- financial markets --- insurance sector --- deltaCoVaR --- minimum spanning trees—topological indicators --- tail dependence

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June 2000 - Allowing banks to hold less capital against loans to borrowers who have received a favorable rating by an approved rating agency may result in a rating system that neither reveals risk information about borrowers nor protects the deposit insurance fund. Part of the problem is the very idea of basing portfolio risk evaluation on the sum of individual loan risks, but there are also important incentive issues. It has recently been proposed that banks be allowed to hold less capital against loans to borrowers who have received a favorable rating by an approved rating agency. But a plausible model of rating-agency behavior shows that this strategy could have perverse results, actually increasing the risk of deposit insurance outlays. First, there is an issue of signaling, with low-ability borrowers possibly altering their behavior to secure a lower capital requirement for their borrowing. Second, establishing a regulatory cut-off may actually reduce the amount of risk information made available by raters. Besides, the credibility of rating agencies may not be damaged by neglect of the risk of unusual systemic shocks, although deposit insurers greatest outlays come chiefly at times of systemic crisis. And using agencies' individual ratings is unlikely to be an effective early-warning system for the risk of systemic failure, so use of the ratings could lull policymakers into a false sense of security. It is important to harness market information to improve bank safety (for example, by increasing the role of large, well-informed, but uninsured claimants), but this particular approach could be counterproductive. Relying on ratings could induce borrowers to increase their exposure to systemic risk even if they reduce exposure to specific risk. This paper - a product of Finance, Development Research Group - is part of a larger effort in the group to examine the effects of financial sector regulation. The author may be contacted at phonohan@worldbank.org

Bank --- Bank Failure --- Bank Failures --- Banking Supervision --- Banks --- Banks and Banking Reform --- Capital --- Capital Adequacy --- Capital Requirement --- Capital Requirements --- Debt --- Debt Markets --- Deposit Insurance --- Deposits --- Emerging Markets --- Finance and Financial Sector Development --- Financial Literacy --- Interest --- Lending --- Loans --- Private Sector Development --- Projects --- Rating Agencies --- Risk --- Risk Factors --- Systemic Risk

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This Special Issue covers the topic of timely vital risk management - systemic risk - from many important perspectives. It includes novel and scientific approaches from the network with topological indicators on systemic risk, community analysis of the global financial system, welfare analysis of capital insurance and the impact of capital requirement, risk measures, and optimal portfolio and optimal reinsurance under risk constraint. Most articles study the financial sector and insurance companies after the financial crisis of 2008–2009 circa ten years prior. The COVID-19 global pandemic in 2020 has caused similar or even greater challenges for the entire economy. Therefore, this Special Issue will be useful for anyone interested in systemic risk management.

Coins, banknotes, medals, seals (numismatics) --- optimal reinsurance --- general risk measure --- risk sharing --- systemic risk --- capital insurance --- welfare --- equilibrium --- conditional value-at-risk --- mean-CVaR portfolio optimization --- risk minimization --- Neyman–Pearson problem --- interconnectedness --- financial conglomerate --- contagion --- capital requirement for premium risk --- collective risk model --- reinsurance strategies --- Solvency II --- community structure --- complex networks --- financial markets --- insurance sector --- deltaCoVaR --- minimum spanning trees—topological indicators --- tail dependence

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The financial collapse of Fannie Mae and Freddie Mac in 2008 led to one of the most sweeping government interventions in private financial markets in history. The bailout has already cost American taxpayers close to $150 billion, and substantially more will be needed. The U.S. economy--and by extension, the global financial system--has a lot riding on Fannie and Freddie. They cannot fail, yet that is precisely what these mortgage giants are guaranteed to do. How can we limit the damage to our economy, and avoid making the same mistakes in the future? Guaranteed to Fail explains how poorly designed government guarantees for Fannie Mae and Freddie Mac led to the debacle of mortgage finance in the United States, weighs different reform proposals, and provides sensible, practical recommendations. Despite repeated calls for tougher action, Washington has expanded the scope of its guarantees to Fannie and Freddie, fueling more and more housing and mortgages all across the economy--and putting all of us at risk. This book unravels the dizzyingly immense, highly interconnected businesses of Fannie and Freddie. It proposes a unique model of reform that emphasizes public-private partnership, one that can serve as a blueprint for better organizing and managing government-sponsored enterprises like Fannie Mae and Freddie Mac. In doing so, Guaranteed to Fail strikes a cautionary note about excessive government intervention in markets.

Business failures --- Financial crises --- Housing --- Mortgage loans --- History --- Finance. --- Government policy --- Freddie Mac (Firm). --- Federal National Mortgage Association. --- 333.109 --- 333.139.2 --- 333.17 --- 333.663 --- 333.733 --- 333.78 --- US / United States of America - USA - Verenigde Staten - Etats Unis --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Business mortality --- Failure in business --- Mortality, Business --- Success in business --- Finance --- Veiligheid. Bankovervallen. Bankrisico's --- Bankcontrole en -reglementering. Reglementering van het bankberoep --- Crises, saneringen en hervormingen van het bankwezen --- rating van bedrijven --- Krediet op grond en onroerende goederen --- Kredietcontrole. Credit crunch --- Freddie Mac (Firm) --- FNMA --- United States. --- F.N.M.A. --- FannieMae --- Fannie Mae --- Federal Home Loan Mortgage Corporation --- Affordable housing. --- Agency debt. --- Alt-A. --- Asset management. --- Asset. --- Balance sheet. --- Bank of America. --- Bank run. --- Bank. --- Bear Stearns. --- Ben Bernanke. --- Capital market. --- Capital requirement. --- Cash. --- Central bank. --- Citigroup. --- Commercial bank. --- Conservatorship. --- Countrywide. --- Credit (finance). --- Credit risk. --- Credit score in the United States. --- Credit score. --- Creditor. --- Debt. --- Dodd–Frank Wall Street Reform and Consumer Protection Act. --- Down payment. --- Economics. --- Economist. --- Economy. --- Equity (finance). --- Fannie Mae. --- Federal Housing Administration. --- Federal Housing Finance Agency. --- Financial crisis. --- Financial institution. --- Financial services. --- Fixed-rate mortgage. --- Foreclosure. --- Freddie Mac. --- Funding. --- Government National Mortgage Association. --- Government debt. --- Guarantee. --- Hedge fund. --- Heitor Almeida. --- Henry Paulson. --- Home equity. --- Household. --- Income. --- Insolvency. --- Insurance. --- Interest rate risk. --- Interest rate. --- Investment. --- Investor. --- JPMorgan Chase. --- Lehman Brothers. --- Lender of last resort. --- Leverage (finance). --- Line of credit. --- Macroeconomics. --- Market discipline. --- Market liquidity. --- Monetary policy. --- Moral hazard. --- Mortgage Rate. --- Mortgage bank. --- Mortgage loan. --- Payment. --- Pension fund. --- Percentage. --- Private mortgage. --- Private sector. --- Privatization. --- Quantitative easing. --- Race to the bottom. --- Real estate appraisal. --- Real estate economics. --- Receivership. --- Recession. --- Refinancing. --- Repurchase agreement. --- Resolution Trust Corporation. --- Return on equity. --- Saving. --- Savings and loan association. --- Secondary mortgage market. --- Securitization. --- Security (finance). --- Subprime. --- Subsidy. --- Systemic risk. --- Too big to fail. --- Underwriting Standards. --- Underwriting. --- Value (economics). --- Washington Mutual. --- Working paper.