Abstract
European legislation for the prudential regulation of insurance and reinsurance sector has existed since the 1970s, gradually materialized in Directive 92/49/EEC and Directive 2002/83/EC, both known as Solvency I. Due to economic and political development the regime become insufficient and therefore in 2009 was adopted the Directive 2009/138/EC known as Solvency II, which represents a crucial modernization of European insurance regulation. Each of these regimes prescribes its own rules for the valuation of assets, liabilities and available capital to cover regulatory solvency requirement. This paper is focused on detection of conditions set up for valuation of assets and liabilities under each of the regime and to outline the calculation of available capital under each of the model.
Highlights
Insurance and reinsurance undertakings play a key role in a local as well as global economy, they allowing enterprises and individuals to exchange the risk of an uncertain and costly financial outcome for a fixed premium
Prudential regulation had been in effect since 1970 in major European insurance markets and was completed by promulgating so-called Solvency I regime, covered by the text of the Directive 92/49/EEC concerning insurance segment other than life insurance, e.g. non-life insurance segment and the Directive 2002/83/EC concerning life insurance segment
Solvency I requirements are recognized as being a simple formula that is not sufficiently sensitive to risk and which is being calibrated at a too low level of capital
Summary
Insurance and reinsurance undertakings play a key role in a local as well as global economy, they allowing enterprises and individuals to exchange the risk of an uncertain and costly financial outcome for a fixed premium. These undertakings need to be sufficiently well-capitalized and prudently managed so that they can withstand its obligations as they become due. Prudential regulation had been in effect since 1970 in major European insurance markets and was completed by promulgating so-called Solvency I regime, covered by the text of the Directive 92/49/EEC concerning insurance segment other than life insurance, e.g. non-life insurance segment and the Directive 2002/83/EC concerning life insurance segment. Solvency I requirements are recognized as being a simple formula that is not sufficiently sensitive to risk and which is being calibrated at a too low level of capital.
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