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Solvency II Framework
Solvency II provides a new set of regulatory requirements for European insurance firms. It is a comprehensive program of regulatory requirements for insurers, covering authorization, corporate governance, supervisory reporting, public disclosure, risk assessment, and management. Its core aim is to harmonize capital requirements and risk management standards for the insurance industry.
The key objectives of Solvency II are as follows:
- Improved consumer protection: It will ensure a uniform and enhanced level of policyholder protection across the EU. A more robust system will give policyholders greater confidence in the products of insurers.
- Modernized supervision: The “Supervisory Review Process” will shift supervisors’ focus from compliance monitoring and capital to evaluating insurers’ risk profiles and the quality of their risk management and governance systems.
- Deepened EU market integration: Through the harmonization of supervisory regimes.
- Increased international competitiveness of EU insurers.
The Solvency II framework has three areas, often referred to as pillars:
- Pillar 1 sets out quantitative requirements – these include rules to value assets and liabilities, calculate capital requirements, and identify eligible proprietary funds to cover those requirements.
- Pillar 2 sets out requirements – for risk management and internal governance, as well as the details of the supervisory process with competent authorities.
- Pillar 3 addresses transparency – reporting to supervisory authorities and disclosure to the public, enhancing market discipline and increasing comparability, leading to more competition.
At techcarrot, we help customers with regulatory issues related to Solvency II, financial reporting, corporate restructuring, product development, risk management, or strategic issues, by designing effective solutions based on the latest techniques and innovations.
