Regulations and soundness of insurance firms: International evidence

This paper provides the first cross-country study on the association between firms' soundness and regulatory policies in the insurance industry. Measuring solvency with an accounting based measure of distance to default, namely the Z-score, we find that the power of the supervisory authorities, and regulations related to both technical provisions and investments have an impact on soundness that is robust to controls for firm-specific and country-specific factors. In contrast, corporate governance and internal control rules do not influence soundness. Similarly, capital requirements do not appear to have a robust impact on soundness.