Making Solvency II work: preserving stability of the financial markets
This event will look into what needs to be done at the level two rules phase in order to secure a safe and sustainable insurance and reinsurance industry.
The Solvency II directive, which was adopted in 2009, is supposed to provide for a modern, risk-based system for regulation and supervision of the European insurance and reinsurance industry.
The rules are seen as essential in order to establish a safe and secure insurance sector that can provide sustainable insurance products and support the economy through long term investments and additional stability.
The main way which the directive is supposed to achieve this is through the solvency capital requirement (SCR) and the minimum capital requirement (MCR). The SCR is calculated by a risk based approach so when capital falls below a certain level, supervisory intervention will be needed. The MCR is a lower amount which is envisioned to be between 25% and 45% of the company’s SCR.
However while the proposals are aimed at creating a more secure industry, it is also important that the ‘level two’ rules to not unintentionally force insurance companies away from offering long term guarantees and investing in long term assets. Some argue that the Solvency II measures force insurance providers away from being able to provide long term guarantees and long term investments which could cause significant and needless damage.
The last quantitative impact assessment carried out by the European commission showed that the Solvency II framework did not cope correctly with long term products and would lead to unnecessary and unmanageable levels of volatility in solvency ratios.