Pillar III of Solvency II

René Doff

This chapter will discuss Pillar III of the Solvency II framework. The basic philosophy of this pillar is that once companies are obliged to disclose information to the market, market participants such as investors will also provide incentives to implement good risk management practices. One way to achieve this is to evaluate the stock price or the credit risk appetite for subordinated debt. In practice, many larger insurers issue such debt. Disclosed information helps investors to assess the risks of the insurance company. Pillar III has also created a platform for supervisors to request insurers to provide reports to them. For many years, insurance supervisors had little detailed information on insurers. This caused problems in times of crisis when supervisors wished to carry out proper analyses but had insufficient data.

Solvency II provides the legal powers for supervisors to request detailed standardised reports on the financial situation of companies, as we will see throughout this chapter. We will discuss the reporting requirements at an intermediate level of detail, and then discuss the challenges of insurers that have to make those reports in a timely fashion. Finally

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