In this paper, I show that the introduction of the solvency margin, a capital requirement aimed at limiting Brazilian healthcare insurance firms from excessive risk-taking, has led to adverse effects on firms' growth prospects, affecting firms' fundamentals, and ultimately increasing market concentration. By exploring firms' ex-ante exposure to the capital requirement rule and variation across multiple local markets, I use a differences-in-differences approach to show that more exposed firms grew their customer base 12% less, on average, than their counterparts, and that this effect persists even after three years of the solvency margin implementation. When it comes to firm-level prospects, I show that this higher exposure also affects firms' future financial fundamentals, firms' likelihood of being delisted, and is negatively correlated with changes in the median price levels for customer healthcare plans. Finally, to the extent that this differential growth trend is capable of shifting aggregate industry fundamentals, I show that states with a higher portion of exposed firms saw their market concentration surge 22\% more than their counterparts. The baseline results continue to hold even after performing several robustness checks and employing alternative specifications. Overall, this study enhances the understanding of the trade-offs involved with the implementation of capital requirement rules outside of the financial sector.
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