FAST FACTS ON SOLVENCY II

What is Solvency 2?
- The biggest ever exercise in bringing together insurers and reinsurers under one regulatory regime
- In 2012, all EU countries will be united by a single set of rules governing what constitutes an acceptable level of insurer creditworthiness
Aims:
- To deepen integration insurance market
- To protect policyholders and beneficiaries
- To improve the international competitiveness
- To promote better regulation
- Overcome inadequacies of Solvency I
How:
- By harmonising Solvency II rules
- Aligning capital requirements to each company’s risk profile
- Emphasis on ERM
- Establishing an integrated risk-based approach to supervision
Key Features:
- Principles based
- Risk based
- Entities calculate their own individual solvency capital requirement taking into account the risks they face
- Involves a cultural change to the way (re)insurers do business
- Prescribes changes in corporate governance, risk quantification and management, and financial reporting
- Capital requirements can be assessed using either an internal model or a standard formula
- Framework in place for supervision of insurance groups in each case by a ‘lead regulator’
The Regulatory Framework – 3 Pillars

Pillar 1:
- Sets minimum capital requirements
- Requires each undertaking to calculate its capital requirement using either a standard formula or an internal model
Pillar 2:
- Requires firms to assess and manage the risks to which they are exposed and to assess their own capital needs and maintain that capital
- The undertaking’s assessment of its capital needs and of its risks is subject to supervisory review
Pillar 3:
- Requires regulated firms to disclose publicly, key information that is relevant to market participants
- Aims to enhance market discipline on the regulated insurance undertakings
See schedules and figures in The S2 Handbook / The S2 Executive Guide sections.
Key Messages:

- Solvency II will bring changes to the BG regulatory requirements
- Insurers should be making effective implementation plans now
- The Board and senior management are responsible for making it work
- Suggested actions for now:
- Draw up an implementation plan for Solvency II
- Complete QIS4/5 spreadsheets on a best efforts basis if not done already
- Consider internal model versus standard formula
Timeline:
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