Solvency II and its impact
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by: connwilson
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Word Count: 445
Date: Mon, 26 Dec 2011 Time: 10:44 PM
Let the meaning of Solvency be clear before starting on to Solvency II. The solvency margin is the minimum amount of regulatory capital that an insurance company is indebted to hold against the future unforeseen events which may lead to instabilities and fluctuations in the market. The solvency margin was introduced in earl 1970s. After the introduction of Solvency I process, it became very clear that a more elementary model needs to be introduced in order to monitor the overall financial position of the insurance undertaking. Solvency II is a wider concept then solvency I in the sense of maintaining the capital requirement levels and risk reduction. It will generate various developments in the insurance market. New finance techniques, international financial reporting and prudential standards etc will be made more effective with respect to the growth and protection of the customers.
The proposal of Solvency II was made in July 2007 and the proposal was adopted after a long and detailed consultation process. First of all a press release about the subject was undertaken. Then the consequences and impact on various factor was considered, that is if this directive is been introduced then what new development will take place and how would the insurance market be affected. And thus after going through each of this steps and necessary analysis, the proposal of Solvency II was adopted. But again in 2008 there were some amendments in the proposal and final proposal was made. This directive contained the rules and procedures and criteria for assessment of acquisitions and increase in holdings in the financial and insurance sector.
The process of implementation of Solvency II during the year 2013 is going through a chain of Quantitative Impact studies (QIS) which will enhance consumer protection and risk reduction. The European Union established various supervisory authorities to replace the former supervisory committee. Solvency II will be implemented on 1st of January 2013 as a latest and enhance economic and rick based regulation of insurance and reinsurance in ever member states. It has been observed and expected that the study results are positive and also shows that a large number of European insurers will be joined to form a single unit and take position to meet the new capital requirements. Small and medium enterprises will also take part which will improve the participation rate. There will be some mechanism provided which will reduce the complexity of this system.
Solvency II will contain such rules, regulation and laws that will lessen the instability of insurance market and maintain the capital requirements above the desired level. Thus, this will improve customer safety and provide them protection to receive their claim form the companies by following simple procedures.
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Interview of Bill McGrath (Global CIO for AOL) on how you can create significant competitive advantage through Technology Innovation and Solvency II.
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