For the European insurance industry, Solvency II establishes a revised set of EU-wide capital requirements and risk management standards aiming to reduce or eliminate consumer loss or market disruption in insurance.
Primarily setting out a minimum capital requirement (MCR), the directive sets out requirements for the governance and risk management of insurers, and proposes appropriate disclosure and transparency requirements. PwC's Raftopoulos maintains that a key principle underlying the exercise of these supervisory powers is one of proportionality.
“The directive must be applied in a manner that is proportionate to the nature, scale and complexity of the risks inherent in the business of an insurer. How the principle of proportionality will be applied by supervisors in practice is a key area of focus for many insurers, particularly smaller and less complex insurers,” he says. The challenge in implementing Solvency II will be to show that the model corresponds to precise statistical standards and is trusted by the business as a central contributor to its risk management and strategic decision-making process.
With the implementation date is set for October 2012, rather than give in to the temptation of holding back, insurance companies are encouraged to mimic the Basel III adoptees – regardless of potential amendments - and prepare early to ensure a smoother and more efficient process.