Solvency II Directive : Risk Based Approach
The (re)insurance industry is currently on the way of a radical change in respect of its organization and regulation. Solvency II is the new European supervision regime for insurance and reinsurance undertakings, replacing Solvency I (1973). The Directive will apply to all (re)insurance companies established in the European Union.
It is a risk-based approach to required capital that demands insurers to develop robust risk management practices. It is regarded as state-of-the-art by regulators globally.
Solvency II is structured around 3 Pillars
Solvency II |
Pillar I
Quantitative requirements |
Pillar II
Qualitative requirements and rules for supervision |
Pillar III
Supervisory and public disclosure |
- Regulations on minimum captial requirements
- Solvency Capital Requirement (SCR)
- Reserving
- Investment rules
|
- Governance and Risk management system
- Regulations on financial services supervision
- Capabilities and powers of regulators area of activity
|
- Transparency
- Disclosure requirements
- Competition related elements
|
Quantification |
Governance |
Disclosure |
Solvency II implies significant changes in many aspect of (re)insurance companies specifically:
- Solvency Calculation (SCR, BSCF, Best estimate,..etc)
- Organization (Governance structure, set up policies and processes,…etc)
- Risk Management
- Reporting
- etc
Solvency II Timeframe
The attached timeline shows the upcoming compulsory requirements.
Moving Forward