Solvency II replaces Solvency I as the new regulatory regime for insurance supervision in Europe. It aims to achieve consistency across Europe through market consistent balance sheets, risk-based capital requirements, own risk and solvency assessments, and senior management accountability. Solvency II has three pillars that define capital requirements, governance/risk management standards, and disclosure/transparency rules. It requires insurance companies to hold sufficient capital to ensure obligations can be met over 12 months with 99.5% probability under Pillar 1.

1. INTRODUCTION:
 Solvency II directive will go live for supervisors and
the European Insurance and Occupational
Pensions Authority (EIOPA) on 30 June 2013 (i.e.
transposition of the directive will be complete by
this point). The Solvency II requirements will
replace the Solvency I requirements on 1 January
2014 and the current regulatory regime for
insurance supervision of firms in the UK captured
by Solvency II.
 Solvency II will be adopted by all 27 European
Union (EU) Member States plus three of the
European Economic Area (EEA) countries.

2. Solvency I was a minimum harmonisation
directive, primarily focused on the capital
adequacy for insurers and did not include
requirements for risk management and
governance within firms.
SOLVENCY II:
Solvency II reflects new risk management
practices to define required capital and
manage risk &Solvency II replaced Solvency I.
Need:
In solvency I risk management systems developed
and some requirements are not fulfilled that is the
reason why solvency II is developed.

3.  Aims to achieve consistency across
Europe and includes the following key
ideas:
market consistent balance sheets.
 risk-based capital.
own risk and solvency assessment (ORSA).
senior management accountability and
 supervisory assessment.

4. Solvency II framework has three main
pillars
 Pillar 1 consists of the quantitative requirements (for
example, the amount of capital an insurer should
hold).
 Pillar 2 sets out requirements for the governance
and risk management of insurers, as well as for the
effective supervision of insurers.
 Pillar 3 focuses on disclosure and transparency
requirements.
The pillar framework set out qualitative and
quantitative requirements for calculation
of technical provisions and Solvency Capital
Requirement(SCR) using either a standard
formula given by the regulators or an internal
model developed by the company.

5.  The SCR is the capital required to ensure that the
(re)insurance company will be able to meet its
obligations over the next 12 months with a
probability of at least 99.5%.
 In addition to the SCR capital a Minimum capital
requirement (MCR) must be calculated which
represents the threshold below which the national
supervisor (regulator) would intervene.
 The MCR is intended to correspond to an 85%
probability of adequacy over a one year period
and is bounded between 25% and 45% of the SCR.

6.  The new regime will apply to all insurance firms with
gross premium income exceeding €5m or gross
technical provisions in excess of €25m. Some insurance
firms will be out of scope depending on the amount of
premiums they write, the value of technical provision or
the type of business written.
 Solvency II principles and rules apply to Lloyd’s of
London syndicates in full.
HELP TO PROTECT:
protect policyholders' interests more effectively by
making firm failure less likely, and by reducing the
probability of consumer loss or market disruption

7. Sandeep