Since the world financial crisis of 2008, the world presents a more complex financial environment for financial institutions including the insurance sector. Solvency II is an example of increased obligations of financial institutions to ensure sufficient capital base to address possible future financial crises.
Solvency II began in Europe with the intent to address the following:
- Improved consumer protection: It will ensure a uniform and enhanced level of policyholder protection across the EU. A more robust system will give policyholders greater confidence in the products of insurers.
- Modernised supervision: The “Supervisory Review Process” will shift supervisors’ focus from compliance monitoring and capital to evaluating insurers’ risk profiles and the quality of their risk management and governance systems.
- Deepened EU market integration: Through the harmonisation of supervisory regimes.
- Increased international competitiveness of EU insurers.
Capital relief products are designed to allow insurers the ability to transition to new capital requirements by leveraging first class international insurers capital by removing liabilities from previously written business from the balance sheet and selling them to a reinsurer.
- Retrospective Reinsurance Loss Portfolio Transfer (LPT)
- Prospective Reinsurance