Three-pillar structure to be applied to EU insurance regulation

A discussion paper released by the Financial Standards Authority (FSA) and the Treasury confirms that the three-pillar structure will be applied to insurance regulation. ‘Solvency II: a new framework for prudential regulation of insurance in the EU’ outlines key points of the directive and will be planned to be finalised in mid 2007. The directive is expected to go into force by 2010.

Solvency II has been drawn up by the European Commission after a consultation with Member States, regulating the life, non-life and reinsurance business.

The Commission has proposed that a Basel II-type three-pillar structure should be adapted for regulating insurance firms:

• Pillar 1
Minimum Capital Requirements
Harmonised standards for the valuation of assets and liabilities, and the calculation of capital requirements.

• Pillar 2
Supervisory Review Process
To help ensure insurers

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