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Solvency II Directive

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

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