The importance of solvency modernisation

In modernising their solvency regimes, countries and regions are bringing their regulations up-to-date with the significant advances that have been achieved in risk management and group supervision in recent years.

Solvency regulation is so important

… because the main purpose of insurance regulation is to protect policyholders from financial loss. This means ensuring that an insurance company is able to pay in the event that a policyholder files a claim. In other words, insurance regulation is about solvency – about ensuring that insurance companies maintain sufficient capital to meet their obligations after having suffered a financial loss.

It is currently a hot topic

… as the financial crisis of 2007-2009 placed a spotlight on regulation of the entire financial sector, highlighting the solvency modernisation efforts that were already underway in some countries and regions, and promoting other to follow their leads.

Solvency modernisation

… represents an improvement in the regulation and supervision of insurance companies. Many countries and regimes have been well served, even during the financial crisis, by the “micro-prudential” approach to solvency control that has evolved in recent decades (in which supervisory authorities focus on a company’s economic soundness and promptly detect capital adequacy problems). However, in modernising their solvency regimes, countries and regions are bringing their regulations up-to-date with the significant advances that have been achieved in risk management and group supervision in recent years.

The current trend in solvency regulation

… is exemplified by comprehensive risk- and economic-based regulatory regimes, such as the upcoming European Solvency II regulation or the Swiss Solvency Test. These represent a positive step in terms of insurance regulation and point the way forward for other regulatory regimes around the world. They take an economic view and are risk-based, promote group supervision and, if implemented properly, should create an environment in which the insurance industry can operate efficiently and promote financial stability and economic growth.

International perspectives on solvency modernisation

Learn more about the solvency modernisation efforts underway in different countries and regions.

Published 10 October 2011