Solvency II

The European Union harmonized solvency regime for insurers, effective 2016.

Overview

Pillar 1 sets quantitative capital: technical provisions valued to market, a solvency capital requirement from a standard formula or approved internal model, and a minimum floor below which intervention triggers. Pillar 2 adds governance, own risk and solvency assessment, and supervisory review. Pillar 3 mandates public disclosure through annual solvency reports. Later adjustments eased interest rate and long duration stress for life insurers, a long lobbying fight over the treatment of long guaranteed liabilities. The United Kingdom retained its own version after Brexit with further matching adjustment reforms. The regime reshaped European capital planning and influenced solvency regimes from Switzerland to discussions around US risk based capital.