Solvency II – an Introduction
Solvency II – What is it?
After years of managing risk, finding that current risk management strategies will not meet the requirements of Solvency II for whatever reasons has come as a bit of a surprise to some insurance companies. Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry.
It aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current solvency requirements.
The Solvency II Directive states that the new regime was due to go live on 1 November 2012 when it should have replaced the Solvency I requirements and the current regulatory regime for insurance supervision for firms in the UK. The European Commission’s (EC) proposals for the Omnibus II Directive include an amendment to the implementation date by two months to 1 January 2013. However this too has been pushed back and amendments are not yet passed. We will consider and communicate the impact on implementation when the Omnibus II Directive is adopted.
Solvency II will be adopted by all 27 European Union (EU) Member States plus three of the European Economic Area (EEA) countries. As a consistent European standard, Solvency II should help to protect policyholders’ interests more effectively by making firm failure less likely, and by reducing the probability of consumer loss or market disruption. It should also make it easier for firms to do business across the EU as the current patchwork of varying local standards, established to supplement Solvency I, will be replaced by more consistent requirements.
The Level 1 Directive text was adopted by the European Parliament on 22 April 2009 and endorsed by the Council of Ministers on 5 May 2009, concluding the legislative process for adoption. The Directive was formally adopted by the European Council on 10 November 2009, concluding the legislative process for adoption.
