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What Is the Solvency II Directive?

April 12, 2012 | Comments: 0 | Views: 230

If you have recently purchased insurance, then you may have heard of the Solvency II Directive. What is the Solvency II Directive anyway? It is an EU Directive that aims to rationalize, harmonize and modernize insurance regulation of insurance in the European Union. It was officially launched in July 2007 and once it is approved by the European Parliament, it is scheduled to take effect on 1 January 2014.

What is the Solvency II Directive aim? The new legislation aims to make the insurance market in the EU unified which basically means there is better consumer protection, easy to understand insurance policies, better risk management policies and an updated program to cater to all the nations that belong to the European Union.

The Solvency II Directive was a product of insurance reforms in the EU. There was a pressing need to replace the Solvency I Directive which was introduced in 1973 considering there are many new breakthroughs in risk management practices as well as an average person's way of life have also changed so much from the 70s. Most member states see the need to replace the said EU minima which is why a reform was sought leading to the development of the Solvency II Directive.

What is the Solvency II Directive content? Compared to the 1973 Solvency I Directive, the Solvency II had a wider scope. It was focused on creating a new solvency requirement which have several purposes:

• The new solvency will reduce the risk that the insurer is unable to meet claims.

• Policy holders will be better protected if the insurance firm is unable to meet all the claims in full.

• It will also provide a preventive measure that will warn supervisors if capital falls below the required level. Intervention must be done immediately to reduce complications.

• The new solvency will create a spirit of confidence and financial stability of the insurance sector as a whole.

The Solvency II Directive framework has three pillars that will further simplify the new insurance regulation: • Pillar 1 is the quantitative requirements set for the new insurance regulation. An example of this is the amount of capital an insurer can hold. • Pillar 2 is the basis of requirements for the governance and the risk management of insurers. • Pillar 3 is all about disclosure and transparency requirements of insurance companies.

As the implementation date of the Solvency II Directive nears, there is so much debate regarding its key principles and set requirements. Insurance companies are now assessing the new directive and weighing in costs and addressing customer issues before everything is set to be implemented. The Solvency II Directive is available for download online for insurance companies and insurance holders or policy holders to review. It is a must for any policy holder from EU states to start learning all about the new changers before the much awaited date of implementation takes place.

The Solvency II Directive Content

Title I General rules about then new directive for direct insurance and reinsurance activities. . Chapter I Subject matter, scope of the Solvency II Directive and the definition of terms. . Chapter II Taking-up of business . Chapter III Supervisory authorities and general rules . Chapter IV Conditions governing business . Chapter V Pursuit of life and non-life insurance activity . Chapter VI Rules of the valuation of assets and liabilities, technical provisions, own funds, solvency capital requirement, minimum capital requirement and investment rules. . Chapter VII Insurance and reinsurance undertakings . Chapter VIII The right of establishment and freedom to provide services. . Chapter IX Branches related to insurance or reinsurance undertakings with headquarters outside the community. . Chapter X Subsidiaries of insurance and reinsurance undertakings governed by the laws of a third country and the acquisitions of holdings by such undertakings.

Title II Specific provisions for insurance and reinsurance

Title III Supervision of insurance and reinsurance undertakings in a group

Title IV Reorganization and winding-up of insurance undertakings

Each one must make it a point to understand the Solvency II Directive and to determine how it will impact each person's family, company and his business. Various references are available online or though your local insurance company office. I hope this explains a bit more for you concerning the Solvency II directive.

Derrick King is an Author and writer for many websites including but reminds you that this article is not to be considered as sound financial advice it is the point of view of the author only. All major financial decision should be verified by an accredited financial advisor. Stay lucky.

Source: EzineArticles
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