What is Solvency II?
The EU regulatory framework for insurance companies, setting capital requirements, governance standards, and reporting obligations.
Solvency II
The EU regulatory framework for insurance companies, setting capital requirements, governance standards, and reporting obligations.
How it works in practice
A European insurer calculates its risk profile using the Solvency II standard formula. The formula requires it to hold capital against natural catastrophe risk, market risk, credit risk, and operational risk. The insurer's board uses the resulting solvency ratio to decide whether to buy additional reinsurance, issue hybrid capital, or retain more earnings to maintain an adequate buffer above the regulatory minimum.
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