Impacts of Solvency II Regulations on the Insurance Companies and their Operations

Abstract

To run a market smoothly, regulations are very important. These regulations worked as set of parameters for all business operators, managers and their key stakeholders of a specific domain to work under certain rules so that every business has equal opportunity to earn and expand their operations. In Europe since mid of 18th century several legislations were introduced to regulate the market to protect the rights of investors, business and their stakeholders and also to create a free and fair market for all. Insurance companies and their managers were facing a problem with dissymmetry of information which means that they either they do not share important information to each other or either the access to the information was a way costly for them. There was a need of monitoring the economic activities and setting certain requirements for licensing. Regulations, ethics and rules were being introduced since 1800s. after the mid of 20th century, a series of regulations were introduced to regulate the insurance market in Europe according to one market policy and from this series the latest regulations implemented in 2016 are termed Solvency II regulations. Solvency II regulations introduced new risk based economic capital requirements that