Solvency II (Sharon Bowles MEP)

Sharon Bowles MEP <info@sharonbowles.org.uk>

Solvency II

Background

Since the 1970s Solvency margin requirements (the amount of regulatory capital an insurance undertaking must hold against unforeseen circumstances) have been in place. These were amended under Solvency I in 2002 . However, as new financial instruments and risk management techniques have advanced, and it has become clear that the old model does not accurately direct capital to where risk is, there is consensus that the current solvency regime needs modernising.

Considered one of the one of the most significant pieces of financial legislation of this mandate, Solvency II will rewrite 14 existing directives, modernising EU legislation on life, non-life insurance, winding-up and reinsurance.

Solvency II aims to create a more risk-based solvency model. Risk will measured on principles, and capital requirements will be based on actual risk rather than having a generic level for everyone. It will follow the three pillar architecture of Basel II. The first pillar will set out quantitiative capital requirements; pillar two will enable companies to establish their own capital requirement based on an internal model with a more extensive supervisory review; the third pillar is in regards to disclosure.

Although the Commission is responsible for drafting the proposal, CEIOPS (the Committee of European Insurance and Occuaptional Supervisors) was invited by the Commission to give technical advice on specific issues. CEIOPS has responded with two Quantitative Impact Assessments with a third underway and will provide a substantive input into the final text.

Adoption of the directive will be conducted under the Lamfaslussy model. "Level 1" will set out the main framework and principles of the system. The intricate details will be agreed in "Level 2" and "Level 3" in committees of national experts.

Sharon's involvement

Sharon has been appointed the ALDE shadow rapporteur on this dossier.

Timetable

The Commission is expected to finalise it's proposal by July 2007 at which point it will be forwarded to the European Parliament for consideration. As there is no proposal at the moment no further schedules have been established.