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By promoting more sophisticated approaches, including firm-specific internal capital models, Solvency II will ensure a more accurate allocation of capital to risk. Furthermore, the goals of the new risk-based regulation are to:
The current Solvency I regime was introduced in the early 1970s and defines capital requirements by specifying simple blanket solvency margins. Volatility and uncertainty in the estimated value of liabilities is addressed in a fragmented way using broad assumptions that often do not reflect the underlying risk. This simplistic design means that Solvency I lacks risk sensitivity and does not capture a number of key risks, including market, credit and operational risk. Furthermore, it does not ensure accurate and timely intervention by supervisors, nor does it facilitate optimal allocation of capital.
The European Commission is currently working with a number of stakeholders including ABI on the Level 2 draft implementing measures. Whereas, ABI is not expecting to see a final text before late summer 2012, the Commission has indicated that a ‘near final’ text will be published in autumn this year.
The starting date of the new regulatory framework is according to current proposals expected to be on 1 January, 2013.