• [p56-62/163-179 - Comment: Michael P. Lynch]
• p178 - From this point of view, the benefits of solvency regulation cannot be measured merely in terms of reduced insolvency rates. The main benefits are in the increased size of the market which is made possible by the policyholders' belief that insolvencies either won't occur or that, if they do, the policyholders will not be hurt.
• I have not made a detailed study of the history of life insurance solvency regulations, but what little I know of it is consistent with the "lemon" theory of insolvency regulation. In the 1840s the life insurance industry began to grow very rapidly with the successful introduction of the "mutual" policy and the beginnings of the agency system (see J. O. Stalson, Marketing Life Insurance: Its History in America, revised edition [Homewood, ILL: Irwin, 1969], pp. 217-236 and 292-326). Success attracted new entrants, some of whom began to offer "dividends" (paid in scrip, not cash) amounting to 70-80 percent of the annual premium. Agents for company A would suggest that company B was offering dividends far in excess of what they could really pay. The claims gained credence when some companies failed in the 1850s. As Stalson puts it (p. 226),

• The suspicion of all companies which these competitive assaults on individual companies engendered, however, unquestionably did every company more harm that it did any individual agent or company good.

• It was about this same time (the early 1850s) that the states began to impose minimum capital requirements on life insurance companies and the first reserve-valuation laws were passed.
• If the "lemon" theory of solvency regulation has much truth in it then it will be very difficult to assess regulation's benefits. One would have to estimate what the size of the market would have been in the absence of regulation. I doubt that this can be done, though it may be worthwhile to see whether differences in solvency regulations among the states result in any detectable differences in the size of their markets.
• But I don't think the interesting policy questions concern whether or not solvency regulations should be eliminated. Neither industry nor consumers appear to be pushing for their removal. Rather, I think the interesting policy questions concern whether the methods that have been adopted to achieve a given probability of insolvency are low-cost ways of doing so, and how one would go about deciding on an appropriate insolvency rate, 

1981 - NBER - Theory of Solvency Regulation in the Property and Casualty Insurance Industry, Chapter Author: Patricia Munch, Dennis Smallwood - 63p

    1980 - Book - Studies in Public Regulation, by Gary Fromm - nber.org/books-and-chapters/studies-public-regulation