Risk Areas


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


  • To deepen integration insurance market
  • To protect policyholders and beneficiaries
  • To improve the international competitiveness
  • To promote better regulation
  • Overcome inadequacies of Solvency I


  • 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


Download Solvency II Papers on e-Library



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