10 July 2007

Commission Proposal on Solvency II

The Commission issued the proposal on Solvency II. The new framework will replace 14 existing directives with a single directive. “We are setting a world-leading standard that requires insurers to focus on managing all the risks they face and enables them to operate much more efficiently”, Commissioner Charlie McCreevy said.

“Solvency II will set a benchmark for financial services supervision which includes banking”, Thomas Steffen, Chair of CEIOPS said. “It will certainly serve as mental impetus for a further fruitful dialogue with our supervisory partners around the globe.”

The proposal applies the ‘re-casting technique’ which enables substantive amendments to existing legislation without a self-standing amending directive. The new solvency provisions are principles based and follow the 4 level structure of the Lamfalussy financial services architecture. The principles will be further developed through implementing measures.

'Solvency 2' will introduce economic risk-based solvency requirements across all EU Member States for the first time. These new solvency requirements will be more risk-sensitive and more sophisticated than in the past.

The new regime will be a 'total balance sheet' type regime where all the risks and their interactions are considered. In particular, insurers will now be required to hold capital against market risk, credit risk and operational risk.

It will require insurers also to think about any future developments which might affect their financial standing. A new development in this area will be the introduction of the 'Own Risk and Solvency Assessment' (ORSA).

Under the 'Supervisory Review Process' (SRP), supervisors evaluate insurers' overall risk profile to ascertain that they hold adequate solvency capital and that their risk management and governance systems are adequate to the nature, scale and complexity of the insurer in question.

Finally, the new framework will strengthen the role of the group supervisor in the home country that would have specific responsibilities to be exercised in close cooperation with the relevant national supervisors. Furthermore, the new solvency provisions will foster and force greater cooperation between insurance supervisors and will further supervisory convergence.

The Commission aims to have the new system in operation in 2012.

Press release
Proposal
FAQ
Speech McCreevy
Key Messages Thomas Steffen
How to read the proposal

Impact Assessment:
Executive Summary
Impact Assessment Report
Policy Options Annexes (B.1-B.13)
KPMG Study (Annex C.01a)
KPMG Study Annexes (Annex C.01b)
Sharma Report (Annex C.02)
Preparatory Field Study (Annex C.03)
First Quantitative Impact Study (Annex C.04)
Second Quantitative Impact Study (Annex C.05)
DG ECFIN Report (Annex C.06)
European Central Bank Report (Annex C.07)
CEA-AISAM-ACME report on insurance products and markets (Annex C.08a)
CEA-AISAM-ACME report on administrative costs (Annex C.08b)
CEA topography of EU25 insurance market (Annex C.08c)
CEA-Groupe Consultatif glossary (Annex C.08d)
CEA report on the impact of lack of harmonisation (Annex C08.e)
FIN-USE report (Annex C.09)
CEIOPS Report (Annex C.10)
Commission questionnaire (Annex C.11a)
Commission questionnaire stakeholder general comments (Annex C.11b)
Company interviews (Annex C.12)

© Graham Bishop