Solvency II: Restructuring the Insurance Sector (Part 3)

In part 3 of our series on Solvency II, we will try to understand Title I of the Solvency Act in some depth.

Title I: General Rules On The Taking-Up And Pursuit Of Direct Insurance And Reinsurance Activities

The key objectives of this title are:

  1. The taking-up and pursuit, within the community, of the self-employed activities of direct insurance and reinsurance
  2. The supervision of insurance and reinsurance groups
  3. The reorganisation and winding-up of direct insurance undertakings

This title covers the Calculation of Solvency Capital Requirements.

The Solvency Capital Requirement will be calculated on the presumption that the undertaking will pursue its business as a going concern. The Solvency Capital Requirement will be calibrated so as to ensure that all quantifiable risks to which an insurance or reinsurance undertaking is exposed are taken into account. It will cover existing business, as well as the new business expected to be written over the following 12 months. With respect to existing business, it shall cover only unexpected losses.

It will correspond to the Value-at-Risk of the basic own funds of an insurance or reinsurance undertaking subject to a confidence level of 99.5 % over a one-year period.

The Solvency Capital Requirement shall cover at least the following risks:

  1. Non-life underwriting risk
  2. Life underwriting risk
  3. Health underwriting risk
  4. Market risk
  5. Credit risk
  6. Operational risk

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