Solvency II

Background

The EU Solvency II Directive (2009/138/ EC) is a risk-based capital regime that aims to harmonise the prudential framework for insurance firms to promote transparency and comparability. It amends 14 previously existing Directives which are often referred to as ‘Solvency I’, and entered into force in January 2010, with implementation effective from January 2016. The primary concern of policy makers was the amount of capital reserves an insurance firm should hold in order to reduce the risk of insolvency. The key objectives of policy makers were to improve consumer protection, better evaluate insurers’ risk profiles and governance, as well as increase the international competitiveness of EU insurers.

In 2021, the Commission published a review proposal for the Solvency II Directive alongside a proposal for the EU-level harmonisation of recovery and resolution rules. An agreement on the update to the framework was reached in December 2023, seeking to revise the current framework with a focus on the prudential obligations of (re)insurance companies.