Solvency II

Solvency II sets out regulatory and capital requirements for insurance firms and groups, covering financial resources, governance and accountability, risk assessment and management, supervision, reporting and public disclosure.

The Solvency II Directive is a Directive in European Union (EU) law that codifies and harmonises the EU insurance regulation. Solvency II came into effect on 1 January 2016.

The Solvency II supervisory regime consists of the three pillars; Pillar I – Calculation of capital reserves outlines the standard formula insurance companies across the EU have to use for the calculation of their capital reserves covering all types of risk. Pillar II – Management of risks and governance contains the requirements for the management of potential risks and for governance. Pillar III – Reporting and disclosure describes the information and reporting insurance companies across the EU have to submit to the national supervisor and disclose publicly.

Overview
The Solvency II framework is similar to the Basel Committee on Banking Supervision (BCBS) framework for banks, and consists of three main ‘pillars’: