Legal regulation of insurance companies' solvency in the EU: Solvency II

Abstract

The improvement of science and practice of risk management, the development of the insurance market, an increasing importance of the insurance industry and the introduction of Basel II regulations in the banking industry, have led to the development of new solvency regulation in the EU - Solvency II. The aim of the research presented in this paper is to analyse the implications of Solvency II on the insurance industry and to provide a foundation for preparation for the new legislation to domestic insurers and science, which will be automatically implemented when Serbia becomes an EU member. The paper analyses the basic features of the Solvency II and then points to the detailed quantitative and qualitative requirements of the new regulations and the implications for different aspects of the activities of insurance companies. The research results show the importance of the quantitative requirements that are placed in the form of principles rather than strict requirements, as opposed to the current regulations in the EU, including regulation in Serbia, which also represents the most important characteristic of the new regulation. Also, the survey results indicate that the qualitative requirements of Solvency II and implications for risk management and investments are often unjustly neglected. The key conclusion of the research is that the new directive gives insurers the freedom of choice in almost every business segment, under the condition that operations do not endanger the solvency of the insurer and the insureds' interests.

Keywords

• solvency regulation
• insurance companies
• insurers' investments
• risk management
• Solvency II