Insurance regulation

Solvency II is a harmonised prudential framework for insurance firms, applicable since 2016? It replaces a patchwork of rules in the areas of

• life insurance
• non-life insurance
• reinsurance

Solvency II rules introduce prudential requirements tailored to the specific risks which each insurer bears. They promote transparency, comparability and competitiveness in the insurance sector.

The framework consists of

• a directive
• delegated acts
• technical standards

Solvency II Directive

The Solvency II Directive became fully applicable to European insurers and reinsurers on 1 January 2016. It covers three main areas, related to capital requirements, risk management and supervisory rules

• Pillar 1: Risk-based capital requirements
  
  The directive requires insurance companies to hold capital in relation to their risk profiles to guarantee that they have enough financial resources to withstand financial difficulties.
   
• Pillar 2: Governance and risk management requirements
  
  Insurance companies have to
  • put in place an adequate and transparent governance system
  • conduct their own risk and solvency assessment on a regular basis
     
• Pillar 3: Supervisory reporting and public disclosure
  
  The directive
  • enables supervisors to review and evaluate whether insurance companies comply with the rules
  • requires these companies to report to supervisory authorities and disclose information publicly

On 22 September 2021 the Commission adopted a proposal for amendments to the Solvency II Directive. On 13 December 2023 the European Parliament and the Council reached a political agreement on this proposal.

Solvency II Delegated Regulation

Under the Solvency II Directive the European Commission can adopt delegated and implementing acts , including technical standards and implementing acts setting out the information for the calculation of technical provisions and basic own funds.

Equivalence decisions

Equivalence decisions recognise that the supervisory regime for insurers in force in certain non-EU countries is equivalent to the Solvency II regime.

After receiving equivalence, EU insurers can use local rules to report on their operations in these countries, while third country insurers are able to operate in the EU without complying with all EU rules.

To know more about the international activities of the Commission in the area of insurance, see the EU and the world section.

Methodology to determine the relevant risk-free interest rate term structure

Article 77e of the Solvency II Directive requires EIOPA to lay down information relating to the relevant risk-free interest rate term structure to calculate the best estimate.

The EU provides a framework for authorities to manage insurance failures effectively.

Insurance policies play an important role in the lives of the majority of European citizens. For many of the things people do every day, holding an insurance policy is essential to protect against potential risks. An insurance policy can also be a savings product, which will allow policyholders to provide for their long-term welfare while insurers are able to channel these savings via financial markets into the real economy.

The disorderly failure of an insurer can therefore have a significant impact on policyholders, beneficiaries, injured parties or affected businesses. This is especially the case where a substitute for vital insurance services cannot be found in a reasonable amount of time and at a reasonable cost.

Resolution should  occur when national authorities determine that by resolving a failing (re)insurer they can better achieve resolution objectives, such as protecting policy holders and preserving financial stability, than if the (re)insurer entered normal insolvency proceedings.

On 22 September 2021 the Commission adopted a proposal for an Insurance Recovery and Resolution Directive (IRRD). On 14 December 2023 the European Parliament and the Council reached a political agreement on this proposal.

Insurance guarantee schemes (IGSs) use contributions raised by the insurance industry to provide last-resort protection for policyholders, beneficiaries and injured parties when their insurers cannot meet their contractual commitments in case of failure. While, creating consistent last-resort safety nets could promote trust in the single market for insurance, introducing a minimum common framework for these schemes in Europe might also entail implementation costs. However, as such action would constitute a major improvement in protection for policyholders across the EU, the Commission is committed to reassess the appropriateness and timing of alignment in the future.

The rules on reorganising and winding up insurance companies are set out in title IV of the Solvency II Directive.

If an insurance company becomes insolvent, the decision to reorganise or wind up the company is made by the relevant authorities in the EU country where the insurance company is registered. Winding-up proceedings apply to all EU branches of the insurance company.

The supervisory authorities must tell their counterparts in all other EU countries about the decision, including any practical implications. Creditors must all be informed and treated in the same way, regardless of the EU country they are based in.

Reorganisation measures and winding-up decisions can be published in the Official Journal of the European Union by filling out and submitting one of the forms below. You can find here the published reorganisation measures and winding-up decisions per year.

The forms can be downloaded and completed in any official language of the EU.

Please return the completed forms to fisma-d4ec [dot] europa [dot] eu (fisma-d4[at]ec[dot]europa[dot]eu).

• Form to be filled in to publish reorganisation measures in the Official Journal
• Form to be filled in to publish winding-up decisions in the Official Journal

Basic information

• Text of the Solvency II Directive (2009/138/EC)
• Summary of the legislation: Insurance and reinsurance

Delegated and implementing acts

• Delegated and implementing acts to the Solvency II Directive

Transposition by EU countries

• The Solvency II Directive was transposed by all EU Member states into their national law.
• Report from the Commission on the application of title III of Directive 2009/138/EC as regards the supervision of insurance and reinsurance undertakings in a group, and the assessment of the transitional period for the occupational retirement provision business of life insurance undertakings

Ongoing revision

• Ongoing revision of the Solvency II Directive
• Legislative initiative on the review of prudential rules for insurance & reinsurance firms

Legislative history

• Original legislative proposal for the Solvency II Directive
• Impact assessment accompanying the legislative proposal for the Solvency II Directive
• Executive summary of the impact assessment accompanying the legislative proposal for the Solvency II Directive