Auto Insurance Quotes ~ Solvency II explained : Its full name is “Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II)”. When this new risk-based regime replaces the existing flat Solvency I on January 1 2013, insurance companies throughout the European Union (plus Iceland, Liechtenstein and Norway) will be faced with much stronger capital and risk management requirements.
Solvency II consists of three pillars:
● Pillar 1 regulates the capital requirements. Insurers should be capitalised adequate to the risks of their undertakings, especially regarding their asset allocation and their liabilities, based on mark-to-market accounting. Companies could create internal models to calculate their requirements on an individual basis.
● Pillar 2 demands a higher level of risk management and governance. Besides the capital requirements, this is likely become the biggest challenge for smaller firms.
● Pillar 3 establishes higher standards of transparency.
Regarding pensions funds, the directive orders that “the Commission should develop a proper system of solvency rules concerning institutions for occupational retirement provision, whilst fully reflecting the essential distinctiveness of insurance and, therefore, should not prejudge the application of this directive to be imposed upon those institutions”.
