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5 October 2015Nicolas Michellod
Solvency II - the European Union prudential capital regulation - will come in to effect in January 2016 after more than a decade of preparation. For many European insurers it means they are reaching the end of the long road of deep preparation but others have already turned their preoccupations in other directions. For instance the Solvency II regulation came in to effect already this year in Denmark and their level of preparation allowed Danish insurers to adapt to the new regulation. But let's recall what Solvency II is and why it is an important regulation for the European insurance industry. Solvency II is the set of regulatory requirements for insurance firms that operate in the European Union. The rationale is to facilitate the development of a single insurance market in Europe while securing an adequate level of consumer protection. It is based on three pillars:
- The first pillar defines capital requirements. It quantifies the minimum capital requirement (MCR) and the solvency capital requirement (SCR).
- The second pillar provides qualitative requirements in terms of supervision and review. Indeed, the European Commission wants to emphasize the need for insurance companies to implement efficient risk management systems.
- The third pillar introduces the market discipline concept. Insurance companies have to promote transparency and support risk-based supervision through market mechanisms.
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