Solvency II is the new regulatory regime for all EU insurers and reinsurers, due to come into effect in 2013/2014. Solvency II aims to implement solvency requirements that better reflect the risks that companies face and deliver a supervisory system that is consistent across the EU.
The risk based directive is based on a three-pillar structure:
- Pillar I: Demonstrating adequate financial resources refers primarily to the setting of minimum capital requirements
- Pillar II: Systems of governance relates to the internal risk management processes and controls an insurer must put in place
- Pillar III: Reporting requirements requires regulated firms to disclose publicly key risk, management and financial information that is relevant to market participants.
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