Solvency II Directive

Solvency II is a project of the European Commission on a fundamental reform of insurance supervision law in Europe, especially the solvency regime for capital adequacy of insurance companies. Until the implementation of Solvency II, the previous provisions shall be (also called Solvency I ). These are based on the European Directives 2002/13/EC and 2002/83/EC for life insurance for life insurance. They build on the First Directive 73/239/EEC ( taking up and pursuit of the business of direct insurance).

Legislative process

On 10 July 2007 the European Commission presented a proposal for a Solvency II Framework Directive to the European Parliament and Council. In early April 2009, negotiators for the 27 Member States and the EU Parliament could agree on new regulatory and capital rules, Solvency II. Solvency II was adopted by EU Finance Ministers from the EU Parliament and on 10 November 2009 on April 22, 2009.

The national implementation of the Directive will take place in Germany on an amendment to the Insurance Supervision Act. A first draft of this was introduced by the federal government in the legislative process in February 2012, this was delayed, however, due to outstanding Omnibus II Directive (see below).

Solvency II start

To adapt to the new EU financial supervisory architecture and the Treaty of Lisbon, the EU Commission proposed in January 2011 with the so-called Omnibus II Directive, among other changes to the Solvency II Directive. However, the negotiations about between the European Parliament and the Member States in the Council dragged on longer than expected. This created the risk that the Solvency II Directive to the originally intended date: 31 October 2012 in the absence of these changes in the Member States would have to be implemented nationally. A so-called quick -fix policy in September 2012 postponed the deadline so that the Member States would have to take the theoretical rules June 30, 2013, and the company [ deprecated] the new Solvency II rules until 1 January 2014, apply have.

In addition, the EU Commission proposed in September 2012, a further postponement of one year. Elke König, President of the BaFin, the start of Solvency II holds in 2017 for possible while Carlos Montalvo (EIOPA ) strongly emphasizes that EIOPA was working to carry out the implementation on January 1, 2016.

Before further technical decisions are made to control the contents of the Omnibus II Directive, an impact study specifically to different possibilities of modeling long- term guarantees in Solvency II ( "Long Term Guarantee Assessment" ) was performed. The study was commissioned by the trialogue parties by EIOPA in cooperation with the national supervisory authorities and the insurance companies, results were published on 14 June 2013.

Commissioner Barnier beginning of October 2013 stated that a policy has been designed, which shifts the date of the adoption on January 1, 2016, this is also called a "quick fix 2 ".

On 14 November 2013, the Commission has indicated that the trialogue between Parliament and the Council an agreement could be reached and the introduction of Solvency II on 1 January 2016, possible. The Parliament has approved the Omnibus II directive on March 11.

Preparation phase

End of September 2013 EIOPA has published guidelines to prepare for Solvency II. These are applied following a comply- or- explain ' method from 1 January 2014 by the Member States. De facto, therefore preferred some control content of Solvency II, including requirements on business organization and risk management, forward-looking examination of the company's own risks ( in terms of a company's risk and solvency assessment ( Own Risk and Solvency Assessment - ORSA ) ) as well as aspects of the reporting system and the pre-application phase for internal models.

Impact studies

To determine the current state of technical provisions and to assess the impact of the proposed Solvency II requirements were CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors ) 2005-2010 five quantitative impact studies (QIS, English: Quantitative Impact Study ) conducted. The requirements for the risk management of insurance companies and the calculation specifications for the technical provisions were always more concrete. The applicability of the calculation formulas and to create reports to regulators and the public have been tested. Building on the experience from the previous QIS and covering recent events in the financial markets, the formulas have been repeatedly adapted for calculating the solvency capital. In March 2011, the QIS5 results of the EU insurance supervisory authority EIOPA ( European Insurance and Occupational Pensions ) have been published.

Regardless of the coordinated European impact studies of individual national supervisory authorities or other parties have independently conducted impact studies, for example, the German Association of the German Insurance Association ( GDV) with the study, also known as " QIS6 ".

Three- pronged approach

As with Basel II is a three - pronged approach is followed. The risk profile of an insurance policy is inherently different than a bank. When an insurance underwriting risk ( the core business risk) plays the biggest role in the risk assessment, which are important for banks credit and market risks are downstream for insurance. Similarly, the risk situation of insurance companies and banks, however, the operational risk. In the mindset of Solvency II is to protect policyholders and these claims in the foreground.

In addition, the Solvency II Directive includes extensive changes to the supervision of insurance groups. So far, the supervision at group level in addition to supervision on a solo level (so-called " solo -plus supervision "). In the future there will be a cooperative group supervision, cooperate in the national supervisors, the group supervisors and EIOPA in the college of supervisors ( "Supervisory College ").

Solvency Capital Requirement ( " SCR " )

The Solvency Capital Requirement SCR, a target size for the equity is calculated by using the so-called Solvency II standard formula or an internal model. The company can authorize their specific situation adapted models, they do not, they shall apply the hereafter considered standard formula:

The standard formula takes into account various insurance type-specific risks and operational risks. For example, the capital requirement is calculated at an elevated by 15 % mortality rate for life insurance. Operational risks are risks that are due to faulty internal company processes and / or lack of controls, by false estimates (eg the value of the bought company ), by faulty models, due to fraud or external events ( such as epidemics or earthquakes) or encourage.

Criticism is, first, that in the calculation of the SCR, the assumption of normally distributed individual risks are taken. Second, that the interdependence of risks over the (linear) correlation coefficient takes into account instead of non- linear relationships ( copulas ). In first-order uncorrelated, but dependent risks were neglected in the aggregation. In both cases, the equity requirement would be systematically underestimated by the standard formula.