The Journal of Financial Perspectives: Insurance edition

Insurance Print

Welcome to Volume 4 of the Journal of Financial Perspectives, the academic publication of EY.

This issue is entirely devoted to the insurance industry. Based on available data and recent history, we present seven papers that assess the current state of the insurance industry and try to understand its future among risk, regulation, disruptive technologies, challenges and opportunities.

Impact of Robotics, RPA and AI on the insurance industry: challenges and opportunities considers the impact of Robotic Process Automation (RPA) and Artificial Intelligence (AI) on insurance. We analyze the main challenges to successful RPA implementation and the potential impact that more advanced AI methods could have on the evolution of the industry. We also hint at the philosophical and sociological issues related to AI and tackle evolution of regulation.

The value and price of a "too-big-to-fail" guarantee: evidence from the insurance industry tackles capital requirements for large US property and casualty (P&C) insurers, arguing that additional capital requirements are unnecessary, and further stresses important cultural differences in regulation between the US and the EU.

Unnecessary injury: the economic rationale and costs of new global capital requirements for large U.S. property and casualty insurers keeps EU regulation at the center of our debate by examining further challenges posed by regulation, including Solvency II, IFRS7 and Brexit. Related questions of solvency stability, capital generation in relation to investor return, conversion of earning and capital generation into shareholder cash flows, and finally on rational pricing of the business and future balance sheet estimation, are considered.

A comprehensive examination of insurer financial strength ratings shifts geographical focus, and is the first of four papers dealing with aspects of the US insurance market. It examines financial strength ratings for insurance firms, based on a broad analysis of several sources of data, including a proprietary dataset.

Benefits of the U.S. program for terrorism insurance from a comparative perspective outlines the US program for terrorism insurance and explores its advantages as compared to similar programs in other developed countries. Based on an ex-post-recoupment mechanism rather than on premia, this approach requires less capital investment and makes “pricing” more accurate than a reinsurance approach.

Unintended consequences? The impact of IRS notice 2014-52 on acquisitions of U.S. companies by non U.S. insurers and reinsurers discusses the impact of IRS and Treasury regulation on acquisition of US companies from non-US insurers and reinsurers. We argue that the particular treatment of foreign cash boxes, and more generally the disparate treatment afforded to foreign insurers and reinsurers, will continue to have an unwarranted chilling effect on acquisitions of domestic corporations by foreign insurers and reinsurers.

U.S. life insurers’ responses to the financial crisis: a review of the research analyzes the US life insurers’ responses to the financial crisis based on a review of the available research into lessons learned (or not). This concluding paper distinguishes activities that increased economic and statutory capital, from those that increased statutory capital alone.

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