7b. Regulation in the insurance sector solvency II

Quantitative requirements

• Specifies minimum capital requirement (MCR) and solvency capital requirement (SCR)

• If capital < SCR: Insurance company must submit plan to bring it back up

  • SCR calculated with standard formula, internal model, or partial internal model

• If capital < MCR: supervisors can prevent insurance company from taking new business

Qualitative requirements

1. System of governance

• E.g. risk management, internal auditing, internal control, own risk and solvency assessment (ORSA), …

  • ORSA:

    • Identify and assess all risks a company is or may be exposed to

    • Maintain sufficient capital to face those risks

    • Develop and use risk management techniques accordingly

1. Supervisory authorities and general rules

   • Supervisors are responsible for evaluating how companies are assessing their capital adequacy needs relative to their risks —> Empowered to remedial action

Reporting & Disclosure

• Solvency and financial condition report (SCFR)

• Regular supervisory reporting (RSR): solvency & financial condition disclosed by company, ORSA supervisory report, annual & quarterly quantitative templates

• Quantitative reporting template (QRT): includes harmonized EU-wide reporting format