Solvency II Directive & IRRD: New Rules for EU Insurance Sector
Council and the Parliament have reached a provisional agreement on amendments to the Solvency II directive, the EU’s main piece of legislation in the insurance area
Solvency II
Solvency II is a regulatory framework designed to ensure the financial stability of insurance companies in the European Union. Implemented in January 2016, this framework replaces the previous Solvency I regulations and introduces a risk-based approach to supervision.
Solvency II is built on three main pillars. The first pillar focuses on quantitative requirements. It sets standards for the amount of capital insurers must hold, based on their risk profiles. The second pillar addresses the qualitative aspects, including governance and risk management. It ensures that companies have robust systems in place to manage their risks effectively. The third pillar involves disclosure requirements. Insurers must provide detailed information about their financial condition and risk management practices to regulators and the public.
The framework aims to improve the protection of policyholders by ensuring that insurers have sufficient resources to cover their liabilities, even in adverse conditions. It also promotes greater transparency and consistency across the EU insurance market.
Overall, Solvency II enhances the resilience of the insurance sector, encourages sound risk management practices, and fosters consumer confidence in the financial stability of insurers.
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