AIMA

Solvency II

In December 2009, an EU Directive 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 previously enacted in a series of EU Directives, together commonly referred to as the Solvency Directives.

Solvency II 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 will be important to hedge fund managers which receive investments to their funds from European insurers. Regulatory reporting under Solvency II will require significant input on balance sheet assets from fund managers who manage assets for an insurance company.

Implementation of Solvency II across European Member States is expected from 1 January 2014.

Key legislative documents

Solvency II Directive (2009/138/EC) (November 2009)

Relevant consultations

FSA CP11/22: Transposition of Solvency II - Part 1 (November 2011)

EIOPA consultation on the Draft proposal on Quantitative Reporting Templates and Draft proposal for Guidelines on Narrative Public Disclosure & Supervisory Reporting, Predefined Events and Processes for Reporting & Disclosure (November 2011)

HM Treasury Solvency II Framework (Directive 2009/138/EC) consultation (November 2011)

AIMA documents

Response to EIOPA consultation on proposal for Quantitative Reporting Templates for Financial Stability Purposes (February 2012)

Response to EIOPA consultation on draft proposal for Quantitative Reporting Templates (January 2012)

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

Summary of Solvency II (April 2010)