Solvency II paper leaves op risk capital treatment wide open

Brussels -- The EU Commission’s internal market division published a paper in mid-February outlining the scope of the Solvency II project, which will unify insurance industry capital regulation throughout the region. However, the paper says relatively little about how an operational risk capital charge will be handled in the new framework, and calls for further study.

The paper, Note to the IC Solvency Subcommittee: Solvency II--Organisation of work, discussion on pillar I work areas and suggestions for further work on pillar II for CEIOPS (the Committee of European Insurance and Occupational Pensions Supervisors), proposes a Basel II-like structure. Insurers will be able to choose between adopting a EU standard formula for calculating their overall target regulatory capital, or using an internal model. However, the paper -- perhaps with the experiences of