Insurance Supervision: From Solvency I to Solvency II

René Doff

This chapter will describe the regulatory framework for the insurance industry that has been in force in Europe since the 1970s, a framework that has become outdated for a number of reasons. Ultimately, Solvency II is expected to redesign the European framework for insurance supervision, as will be discussed at the end of this chapter. The chapter discusses the background and context of Solvency II, while later chapters will discuss its detailed content.

WHERE DO WE COME FROM?

As discussed in Chapter 3, the objective of insurance supervision is to safeguard the stakes of the policyholders. After all, it is more effective and efficient if one delegated, well-equipped agency is able to monitor the behaviour and financial soundness of insurance companies.

There are basically four classes of supervisory systems. The disclosure system requires companies to publish all relevant information in order for individual policyholders to assess the soundness of companies themselves. We will see later in this chapter that the Solvency II framework includes parts of this philosophy, but aims mostly at the market discipline coming from investors rather than policyholders. The normative