PensionsEurope promotes good pensions for the people of Europe

Solvency II/Omnibus II

The contribution of PensionsEurope to the Solvency II debate is primarily aimed at preventing an inappropriate extension of this regime to pension funds. Solvency II was specifically designed for insurance companies and is unsuitable as a regulatory regime for pension funds. Pension funds are different from insurers and – just like banks, investment funds and investment firms – require a different regulatory approach. 

The Solvency II directive (amended by the Omnibus II directive), became fully applicable to European insurers and reinsurers on 1 January 2016. It is closely based on the Basel 3-pillar structure:

  • The first pillar deals with quantitative issues. It contains rules for the valuation of assets and liabilities, and especially technical provisions and own funds actually held. The regulatory Solvency Capital Requirement (SCR) can be calculated either by applying a prescribed standard formula or by using an internal model developed by the undertaking itself. The Minimum Capital Requirement (MCR) refers to the regulatory lower limit for the solvency capital that has to be held. 
  • The second pillar sets out the qualitative requirements for insurance undertakings and regulatory authorities. Insurers must demonstrate that they have a risk strategy, an appropriate organisational and operational structure, an internal management and control system and an internal audit function. The principle of dual proportionality applies: the same principles apply to all; but the way in which they are applied must be tailored to the undertaking's business model in each case. The so-called Supervisory Review Process (SRP) must also apply the principle of proportionality.
  • The third pillar deals with the requirements governing disclosure of information to both the public and the supervisory authority. Under Solvency II great importance is attached to qualitative statements, especially regarding the undertaking's strategy, risk management and use of the standardised or internal model. The quantitative solvency capital requirements must be published. Any "capital add-ons" applied by the regulator must be included in the publication