Principles or Prescription?
Document ID: 2008-902
Published on: 31st July 2008
Author: Craig Turnbull
Insurance regulators around the world are using principle-based reserving approaches to radically change their approach to insurance group capital adequacy. As they design these new regulatory capital regimes, regulators strive for the optimal balance between principle-based choice (involving management responsibility for appropriately assessing the specific risks of the firm and the freedom to use approaches that most accurately assess these risks) and prescriptive uniformity (providing consistency across firms and comparability of results). At Barrie & Hibbert, we believe that a regulatory regime that compels firms to take responsibility for their own economic scenario assumptions, and that accompanies this freedom with rigorous disclosure requirements, will result in better industry risk management practices than centrally-prescribed uniform scenario sets.
