Proportionality

With over 5,000 insurance firms operating across the EU, there is an enormous diversity in terms of size and nature of operations across different insurers. Solvency II must be designed to ensure that this diversity is recognised and those small firms providing specialised products or serving particular local market needs are accommodated within the new framework.  

This is one of the considerations behind the development of the ‘standard approach’ in Solvency II, which provides a simplified method for firms to calculate their ‘Solvency Capital Requirement’ (SCR). Of course this will involve some simplification with a cautious set assumptions needed in the calculation and in the credit given for diversification effects. This is to ensure that the standard approach is appropriate for many different firms choosing to use the ‘standard approach’ to calculate their SCR.

Solvency II needs to be sufficiently flexible to apply to smaller firms but proportionality should not only refer to size.

Links to CEA Papers

CEA Solvency II Briefing Note 3: The small and medium sized undertakings and Solvency II (June 2007)

CEA Working Document on The Standard Approach for Calculating the Solvency Capital Requirement (March 2006)