Solvency II
Solvency II is an ambitious regulatory project undertaken by the European Commission, now entering an important phase. The new regulation is expected to have a signficant impact on the industry's key value drivers and capital requirements.
A new framework
Solvency II is an ambitious project of the European Union which addresses regulatory requirements for insurance companies. The European Commission released the draft Solvency II framework in July 2007, and the proposed directive now has to pass through the European Parliament and Council of Ministers. Although it is not expected to be implemented before 2012, Solvency II will dominate the European insurance agenda over the next few years and has already changed the risk culture in the industry.
The new EU solvency framework is based on a three-pillar approach similar to the Basel II accord for banking. The EU insurance project addresses several key areas of regulatory compliance, including risk management and public disclosure.
The project also tackles the issue of asset and liability valuation, and will be aligned with the accounting treatment of insurance contracts under the forthcoming International Financial Reporting Standards (IFRS Phase II). As a risk-based solvency regime, Solvency II encourages the use of internal models. Some countries such as the UK and Switzerland have anticipated this development and already started to implement risk-based regulatory requirements similar to Solvency II.
Industry expectations
Swiss Re, along with the insurance industry, welcomes the shift towards a risk-based supervisory system: not only does the project aim to improve insurers’ risk management techniques, it is also expected to create a prudential framework that more accurately reflects the risks borne by insurers. The project will have a significant impact on the industry’s key value drivers and particularly on capital requirements. However, the ultimate benefit for the industry and consumers will depend on the implementation measures.
Implementation at Swiss Re
Swiss Re will continue to work with clients, regulators, rating agencies and financial analysts to help implement appropriate capital models, reach meaningful disclosure levels and make more apparent the benefits of reinsurance business.
Downloads
"Solvency II macht die europäische Versicherungsindustrie fit für den globalen Markt" von Christian Mumenthaler, Zeitschrift für Versicherungswesen 21/2007
"Three cheers for Solvency II" by Roger Ferguson, The Financial Regulator, Vol. 12 No.2, September 2007
