An Information Management Approach to Solvency II

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Solvency II is a fundamental review of the capital adequacy regime for European insurers and reinsurers, planned to take effect from October 2012. The new framework will be based on a three-pillar approach comprising:

1. Quantitative requirements for measuring capital adequacy (Pillar I)

2. A supervisory review process including review of risk management practices (Pillar II)

3. Increased transparency and reporting requirements (Pillar III)

A solvency capital requirement aims to achieve the following purposes:

To reduce the risk that an insurer would be unable to meet claims;
To reduce the losses suffered by policyholders in the event that a firm is unable to meet all claims fully;
To provide supervisors early warning so that they can intervene promptly if capital falls below the required level; and
Solvency I concentrate mainly on the liabilities side (i.e. insurance risks), Solvency 2 will also take account of the asset-side risks i,e; a 'total balance sheet' type approach.