Solvency II

Solvency II

Reference Text: European Directive 2009/138/EC

Date(s) of Application

  • 30/06/13 End of transposition of the Directive into national law
  • 01/01/2014 Application of Directive requirements

The SOLVENCY II Directive has the aim of modernising and harmonising the solvency rules applicable to insurance companies in order to reinforce the protection of policyholders, encourage companies to improve their risk management and ensure harmonised application of legislation in the European Union. After SOLVENCY I, which stipulated a solvency margin determined only according to percentages on premiums and/or claims, insurance legislation moved to more sophisticated rules integrating the different types of risk (market risk, credit risk, life and non-life subscription risk, operational risk) and now draws on valuations of assets and liabilities at market values (i.e. the “fair value” as defined in the IFRS). The former solvency margin is now replaced with 2 new concepts: the MCR (Minimum Capital Requirement), minimum amount of equity below which the insurer loses its approval, and the SCR (Solvency Capital Requirement), target equity amount which is calculated either from the standard model proposed by the regulator, or from a model developed internally but validated by the regulator, on the understanding that it will of course be possible to mix standard model and internal model according to the peculiarities of the company.

Like its “Basel II” banking counterpart, Solvency II is based around three pillars:

  • Pillar I determines quantitative requirements to be respected, particularly in harmonising the calculation of technical provisions and the MCR and SCR.
  • Pillar II requires the establishment of risk governance systems (processes, responsibilities, production and monitoring of indicators, etc.)
  • Pillar III fixes market discipline to increase transparency of the information sent to policyholders and to the regulatory authorities.

Current Situation

Omnibus II Directive, setting out the date of entry into force of Solvency II must be submitted to the European Parliament in October. The European regulator EIOPA launched March 27th consultation on transitional measures before the formal entry into force of Solvency II. The consultation is open until June 2013 and aims to establish a temporary framework from 01/01/2014. Transitional measures focus on the pillars II (governance) and III (reporting), Pillar I being considered insufficiently stable.

Next Steps

June 2013: end of the consultation on the transitional arrangement proposed by EIOPA.

October 22, 2013: Omnibus II submitted to the plenary vote of the European Parliament.

Find out more

EIOPA website
https://eiopa.europa.eu

Directive text
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:335:0001:01:EN:HTML

SGSS Contact: Alain Rocher

Source: SGSS' Regulatory Review - Main Market Initiatives

Head of Knowledge Management Strategy and Market Infrastructure - SGSS
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