Solvency II Overview

Solvency II is a fundamental upgrade of the capital adequacy regime for the European insurance industry. It aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current Solvency I requirements. Solvency II is based on a three pillar approach which is similar to the banking sector (Basel II) but adapted for insurance.

Solvency Timeline & Key Milestones >

The key objective is to reduce the likelihood of an insurer failing, thus reducing the probability of consumer loss or market disruption. It is the biggest ever exercise in bringing together insurers and reinsurers under one regulatory regime. In 2012, all EU/EEA countries will be united by a single set of rules outlining what constitutes an acceptable level of insurer governance and creditworthiness.

Stated Aims:

The European Commission’s original stated aims for Solvency II are:

• To introduce a new ‘risk based’ framework for insurance supervision, not focused solely on ‘quantitative’ aspects
• To incentivise good risk management
• To provide supervisors with appropriate tools to assess overall solvency position
• To promote harmonisation of standards across the EU
• Better supervision of groups and conglomerates
• To ensure the industry is more adaptable to future changes

• Consistent with emerging international developments

How Will This be Achieved:

• By harmonising Solvency II rules
• By aligning capital requirements to each company’s risk profile
• Emphasising Enterprise Risk Management (ERM)
• Establishing an integrated risk-based approach to supervision

However, we believe that the implementation of Solvency II should not be seen purely as a compliance exercise, but instead an opportunity to support more effective decision making processes within organisations. Insurers who embrace this idea early on stand to gain a significant competitive advantage. Engaging in the Solvency II planning process early will not only ensure you are meeting requirements, but allow organisations exploit the additional business effectiveness advantages.

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