Solvency II
Solvency II is the EU's risk-based supervisory regime for insurers and reinsurers; it governs capital requirements, governance and reporting duties in three pillars.
Three-pillar structure
Pillar 1 defines quantitative requirements: market-consistent balance sheet valuation, the solvency capital requirement (SCR, calibrated to a 99.5 percent one-year risk) and the minimum capital requirement (MCR). Pillar 2 requires governance, risk management and the own risk and solvency assessment (ORSA). Pillar 3 governs disclosure and supervisory reporting.
Scope
Covered are insurers and reinsurers domiciled in the EU above de minimis thresholds, as well as groups with an EU parent. For third countries – including Switzerland – equivalence decisions exist that, for example, facilitate the recognition of reinsurance.
Practical relevance
Solvency ratios influence risk carriers’ capacity, pricing behaviour and ratings. For policyholders, SFCR reports are a public source for counterparty assessment.
Legal basis
- EU: Directive 2009/138/EC (Solvency II)