What is Solvency II equivalence?

Under Solvency II equivalence, the EU would recognize a non-EU country’s solvency regime as producing comparable outcomes to its own, meaning less regulatory scrutiny. The Solvency II directive extends equivalence in three areas: reinsurance, solvency calculation and group supervision.

Which insurers are subject to Solvency II?

Solvency II will apply to most insurers and reinsurers with their head office in the European Union (EU), including mutuals, and companies in run-off unless their annual premium income is less than €5 million.

What are Solvency II firms?

Solvency II sets out regulatory requirements for insurance firms and groups, covering financial resources, governance and accountability, risk assessment and management, supervision, reporting and public disclosure.

Will Solvency II apply after Brexit?

The UK transition period according to the Withdrawal Agreement ends on 31 December 2020. Following this date, all Union primary and secondary law will no longer apply to the United Kingdom, including the Solvency II Directive as well as the Directive on Insurance Distribution (IDD).

Is Japanese Solvency II equivalent?

2. In November 2015, the European Commission published its decision to grant temporary equivalence to Japan in accordance with Article 172 of the Solvency II Directive and based on the advice of EIOPA. The European Commission, EIOPA and the FSA welcome the regulatory and supervisory developments by both sides.

Is Switzerland subject to Solvency II?

Switzerland is granted full equivalence in all three areas of Solvency II: solvency calculation, group supervision and reinsurance.

Who governs Solvency II?

Solvency II is an EU legislative programme implemented in all 28 Member States, including the UK, by 1 January 2016. It introduces a harmonised EU-wide insurance regulatory regime.

Who regulates Solvency II?

After years in development, and over £3 billion spent by UK firms on implementing it, Solvency II came into force in January 2016, representing the largest change to insurance regulation in the EU for over 30 years. In the UK, the PRA is responsible for its implementation.

Does Solvency II apply to the UK?

Introduction to the UK implementation of Solvency II Other aspects of the Solvency II framework, made by the European Commission (Commission) under delegated authority given to it by the Solvency II Directive, have direct application in Member States and are not separately implemented in the UK.

What is SCR Solvency II?

The solvency capital requirement is the amount of funds that insurance and reinsurance companies are required to hold under the European Union’s Solvency II directive in order to have a 99.5% confidence they could survive the most extreme expected losses over the course of a year.

When did Solvency II go live?

1 January 2016
Primarily this concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency. Following an EU Parliament vote on the Omnibus II Directive on 11 March 2014, Solvency II came into effect on 1 January 2016.

Who enforces Solvency II?

the European Commission
Level 4 – Post-implementation enforcement After the deadline for implementation, the European Commission is responsible for ensuring that member states are complying with the legislation. If they are not doing so, the Commission will take enforcement action.

How are equivalence rules applied in Solvency II?

Under Solvency II, there are three distinct areas for equivalence assessment: Relevant for reinsurers from third countries. If the third country’s rules are deemed equivalent, such reinsurers must be treated by EEA supervisors in the same way as the EEA reinsurers.

Why is reinsurance important in Solvency II model?

By using reinsurance, the Solvency Capital Requirement is reduced because part of the cedent’s underwriting risk is transferred to the reinsurer. In the Solvency II standard model, the underwriting risk module comprises mainly premium risk, reserve risk and catastrophe risk and reinsurance can have a risk-reducing impact on all of these elements.

What should be the solvency ratio of a cedent?

A simple starting point to assess the value of reinsurance for the cedent’s capital position is to look at the solvency ratio – which should always be greater than 100%.

What are the benefits of equivalence in insurance?

Positive equivalence findings are mutually beneficial to European Economic Area (EEA) (re)insurers and third country (re)insurers. Likewise, equivalence findings promote open international insurance markets, whilst simultaneously ensuring that policy holders are adequately protected globally.