Solvency II—pillar 2: governance, risk management and supervisory review
Produced in partnership with a member of a leading accounting firm
Solvency II—pillar 2: governance, risk management and supervisory review

The following Financial Services guidance note Produced in partnership with a member of a leading accounting firm provides comprehensive and up to date legal information covering:

  • Solvency II—pillar 2: governance, risk management and supervisory review
  • Background to the Solvency II framework
  • Scope of this Practice Note
  • System of governance
  • Own Risk and Solvency Assessment
  • Supervisory review processes
  • Further references

Background to the Solvency II framework

The requirements of the Solvency II framework are set out in principle in Directive 2009/138/EC (SII Directive), as amended by Directive 2014/51/EU (Omnibus II) and Regulation 2015/35 (SII Regulation). Solvency II refers to measures which form part of a comprehensive harmonisation of the capital adequacy regime for (re)insurance firms in the EU. The Solvency II framework is part of a group of measures aimed at increasing consumer protection (in this case for insurance policyholders) and stability within financial markets. For the first time, Solvency II introduces economic risk-based solvency requirements across all EU Member States. Rather than a 'one size fits it all', each insurer’s individual risk profile shall determine its specific capital requirements. Furthermore, it puts a greater focus on the risk management and sets stricter rules with regard to the public disclosure of information. Solvency II will come into force on 1 January 2016 (please see Practice Note: Solvency II—essentials for further information).

Scope of this Practice Note

The European Insurance and Occupational Pensions Authority (EIOPA) uses the concept of pillars to group the strands of measures within Solvency II. Please note that this is not a concept used in the SII Directive itself (please see Practice Note: Solvency II—essentials for further information):European Insurance and Occupational Pensions Authority

  1. pillar 1-—Harmonised valuation and risk-based capital requirements—firms should have adequate risk-based capital. Asset and liability valuations should be prudent and market consistent. For more information about the pillar I requirements, see Practice Notes Solvency II—Pillar 1 capital requirements: valuation, classification and eligibility and Solvency II—Pillar 1