24.7.1973

European Union

United Arab Emirates

In the US, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 brought sweeping reform of banking and established the Federal Insurance Office to collect data on insurers and recommend changes to state regulation of insurance.

European legislation lagged behind the US to some degree. In the mid-1990s the US had already adopted an overall risk-based model for capital requirements (RBC) in insurance companies. Europe at that time was still using the Solvency I system, largely based on the solvency regime which the EU had put in place for insurers in 1973 and which mainly relied on defining capital requirements for insured risk.

But more sophisticated risk measuring models and methods had been made available over the previous 30 years, and so the Solvency II Directive was drafted with a much wider scope but also with a broader impact on insurers. This is because the costs of tighter capital requirements for insurance ultimately feed through to products but in some cases cannot be passed on to consumers. The implementation of Solvency II is still pending.

Although many countries around the world adopted the US-type risk-based capital regulatory system, the Solvency II Directives may have a huge impact on insurers worldwide, not only in Europe. Moreover, many states outside the EU are evaluating the Solvency II model with a view to adapting it for their use. In fact, the Directives provide useful guidelines to setting up comprehensive enterprise risk management for insurers, but they may also prove very costly to implement.

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