AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

Solvency II

In December 2009, Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (recast), (Solvency II), was published in the Official Journal of the European Union. Solvency II updates the regulatory regime for European insurance and reinsurance firms by replacing a previous series of 13 EU Directives (Solvency I) with a new risk-based regulatory framework to increase protection for policyholders.

Solvency II is structured across three 'pillars' - (1) quantification; (2) governance; and (3) disclosure - and includes requirements for insurance companies to:

  • meet a Minimum Capital Requirement (MCR) below which a firm may lose its regulatory authorisation;
  • meet a Solvency Capital Requirement (SCR) below which an insurance firm will be investigated by its market regulator and will be required to take corrective action;
  • calculate its MCR and SCR based on its insurance liabilities, available own funds (assets) and the presence of certain risks, including operational and market risks;
  • have a ‘prudent person approach to investment’, opening up the classes of assets in which insurance companies can invest;
  • undertake extensive reporting to the market and to market regulators; and
  • implement governance procedures and systems and controls to manage their businesses and their risks, including requirements on controlling and understanding outsourced functions.

Solvency II poses certain challenges for hedge fund managers which receive allocations from EU insurance companies. The Pillar 1 capital requirements impose onerous capital standards upon insurance companies which use the ‘standard model’ for their allocations to hedge funds, and the data reporting requirements under Pillars 1 and 3 will demand significant amounts of investment level data to be delivered to insurance companies by fund managers in a very short space of time.

The Level II measures under Solvency II have been delayed whilst an additional Directive - known as ‘Omnibus II’ – was negotiated. Omnibus II contains, among other things, transitional measures to reconcile Solvency II with the new European supervisory architecture introduced by the Treaty of Lisbon. Political agreement on Omnibus II was reached in November 2013. It now falls to be endorsed by Member States before finalisation. Publication of the Solvency II Level II measures is likely to occur in Q1/2 2014.

The Solvency II framework is anticipated to become operational on 1 January 2016.

Key Legislative Texts

Solvency I

Solvency I Directives

Solvency II

Level 1

Level I Text of Solvency II (December 2009)

Directive 2012/23/EC amending the date of transposition and application of Solvency II (September 2012)

AIMA documents

Summary - Solvency II implications for AIMA's Hedge Fund and Fund of Hedge Funds Managers (December 2011)

Note on the Solvency II Directive (April 2010)

Other documents

EIOPA techncial assssment of LTG package (June 2013)

EIOPA technical assessment of the long-term guarantees package (January 2013)

EIOPA publishes Opinion on interim measures regarding Solvency II (December 2012)

 

 

 

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      1. AIFMD
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        1. ETFs and Structured UCITS
      5. Venture Capital
    2. US Hedge Fund Adviser Regulations
      1. Registration and Reporting
      2. Incentive-Based Compensation
      3. JOBS Act
    3. Asia Pacific Asset Management regulation
    4. Other Jurisdictions’ Asset Management Regulation
    5. Regulation of NBFCs / SIFIS
    6. Supervision
      1. UK regulatory reform
      2. European Supervisory Authorities
      3. US Self-Regulatory Organisations
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      1. UK
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      3. CRD IV and CRR
      4. AIFMD
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      7. CFTC Automated Trading
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