The Solvency II Process : Overview and Critical Analysis

As early as the 1970s, European Union (EU) member countries implemented rulesto coordinate insurance markets and regulation. However, with the more recentmovement toward a general single EU market, financial services regulation hastaken on new meaning and priority. Solvency I regulations went into effect formember nations by January 2004. The creation of risk-based capital standards, themain focus of Solvency II, now appears likely sometime after 2007. The purpose ofthe discussion presented here is to outline the specifics of Solvency II as they currentlystand and provide input to the evaluation process that, ultimately, will determinethe exact form of capital regulation. Our analysis leads us to conclude thatcaution is warranted.