Discover the 3 objectives of the Solvency II Directive

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Contents

In the last 5 years the insurers They have had to face important challenges such as the elasticity of the capital market, drastic changes at the legislative level (additional auditability and transparency requirements) and investment performance.

In this situation, the European Directive Solvency II, with the intention that insurance companies maintain a total volume of technical provisions and a solvency capital that guarantees their stability in the face of adverse external fluctuations.

Its ultimate purpose is focused on trying to ensure that companies maintain an economic level in accordance with the commitments assumed, while guaranteeing the protection of the insured.

Solvencia II

Objectives of the Solvency II Directive / Solvency 2

Like all European regulations, the Solvency II Directive It consists of a series of objectives, which could be summarized in the following mainly:

1. Strengthening the protection of policyholders through guarantees of technical provisions for cash reserves and capital requirements that establish a safety cushion that makes it possible to react to a possible deterioration of the insurer's equity situation.

Specifically, Solvency II aims to reduce the risk that an insurer will not be able to pay claims. At the same time, intends to avoid or at least reduce the claims suffered by the insured in the event that the company finally goes bankrupt, thus fostering confidence in the stability of the insurance sector.

One way to achieve these goals would be through a alert system that would allow intervention whenever capital falls below a certain level, option that is also provided for in the directive itself, even though in practice the existence of such a system requires that the level of capital be consistent with the level of risk that each company bears.

2. Give more freedom for insurers so they can select their risk profile (within the margins of your capital).

In reality, the Directive will oblige, On one side, insurers to adjust their own resources to a new risk control system Tailored to the profile of each entity, a control that will undoubtedly be strict and rigorous, but that on the other hand will provide more investment freedom to insurers, and this will be provided exactly because of the fact that the risks of insolvency.

3. Promote quality improvements risk management.

In connection with this third objective, It should be noted that the European insurance sector is working on the creation of highly studied and very complex models, that can lead to less than desired results, given that this objective of the directive may mean that many companies incur unavoidable expenses if they want to comply with the requirements of the new regulations.

Thus, We cannot prevent this directive from proposing a profound change in the way of operating and this impacts insurers with:

  • Massive costs to adapt IT and business processes to regulatory compliance.
  • Systemic governance and data quality issues that change implementation times.
  • Ambitious and unrealistic implementation times.

The impact and implementation time of this new way of weighing the risk of each operation will depend on the ability to adapt its information infrastructure to the new requirements and on the ability to comply with this technical provision.. At the same time, the derived costs could be passed on to the client by increasing the renewal price of their policy.

Exactly for that, Ideally, to minimize costs and damages for both the insurer and the insured, Solvency II will consider existing risk management models, adapting them to the new regulations.

Solvency II will enter into force between 2014 Y 2017. This vagueness, as well as approved delays, have led some entities to relax and slow down the processes of adaptation to the new capital regulations. The new requirements imply a more complex preparation work than that foreseen in 2009 by the legislator.

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