It should perhaps be a matter of concern that one of the biggest issues in the insurance industry of recent years is something which is of relevance not to the masses, but to the specialists. Solvency II affects all parts of the insurance value chain to differing degrees as well as the customer who, some will argue, has had to ultimately bear the cost.
Risk in the insurance world is, for many, confusing. Many general practitioners take the term to mean underwriting risk. That topic will be addressed elsewhere. In this context we seek to address the issue of the risks associated with the management of capital to ensure that the insurance company remains solvent, and also the regulatory framework within which it is enclosed.
3.1 Solvency II
Overall this is a complex subject and it is not the intention to cover in a few paragraphs what can readily comprise the content of one book (or more) but simply to provide an overview for those who might be new to the subject. An authoritative book on this topic is Value and Capital Management by Tom Wilson1 which includes the impact of effective risk management on claims and marketing staff for instance. In effect Solvency II is the European regulation that governs the amount of capital that an EU insurance company needs to remain solvent. The principle has also been expanded to many other countries who have created their own regulatory models. In addition, the process of ‘equivalence’ ...