Solvency II (SII) is a European initiative intended to bring a more coordinated, consistent and modern approach to solvency regulation of insurance companies. It involves changes in accounting rules as well as changes in the computation of required capital.
Executive SummaryWhile there are some aspects of Solvency II that could be adapted for use by the NAIC in regulating U.S. property/casualty companies, there are others that are imprudent, impractical, irrelevant or inconsistent with the fundamentals of NAIC solvency regulation—not the least of which is a reserve risk capital requirement intended to cover only one year of adverse loss development, a recognition of upfront income, and an approach to internal models implicitly biased in favor of companies with many business segments.
The European Insurance and Occupational Pensions Authority (EIOPA) and its predecessor Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) have been promoting SII since 2004. Five quantitative impact studies (QIS) have been done, but SII has become mired in controversy and repeated delays, and it is not clear when or if it will be implemented. SII is inevitable, but not as inevitable as it was a few years ago.
Much of the opposition has come from the European life insurance industry, concerned that SII will destroy the viability of long-term guarantee products and lead to a fire sale of long duration assets. There is also resistance from the United States. The U.S. Congress held hearings in June 2013 that raised concerns about the impact of EU insurance regulatory developments on U.S. firms.