The need to pursue legitimate policy objectives in the financial services sector, including insurance services, while progressively liberalizing financial markets under the framework of WTO, has been underscored and reflected by the adoption of the Annex on Financial Services under GATS, which constitutes the prudential exception to other obligations and commitments. By exploring some interpretative issues on the applicability of this prudential exception to trade in insurance services, this paper argues that for a WTO Member to exercise the prudential exception, the Member is required to provide evidence that a measure, which is inconsistent with rules and obligations under GATS, satisfies a three-layer examination. First, that measure must be concerned with preservation of solvency of insurance service suppliers to fulfil their obligations towards policyholders and other relevant persons, and towards the stability and integrity of the financial system as a whole. Second, a degree of connection between that measure and prudential objectives must be demonstrated through primarily aimed at test. The third layer is to ensure that the application of that measure must not constitute disguised restrictions on trade in insurance services. This understanding of GATS prudential exception would maintain the balance between the rights of a Member to regulate its insurance services sector, and the rights of other Members to rely on the performance of that Members obligations and commitments with regard to liberalization of trade in insurance services.