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16 August 2007 / Julie Nazerali , Julie Vandenbussche , Katie Lamb
Issue: 7286 / Categories: Features , EU , Competition , Commercial
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The science of risk management

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The EC’s Solvency II proposals will change the face of insurance regulation, say Julie Nazerali, Katie Lamb and Julie Vandenbussche

The European Commission’s Solvency II proposal (Comm 2007/361) has finally been issued after years of preparation, analysis and consultation with stakeholders and interested parties.

Since the 1970s, when the EU began developing a legislative framework to facilitate the development of a single market in insurance services and secure an adequate level of consumer protection, the science of risk management has evolved, new products have been launched and new risks have emerged.

The Solvency II proposal aims to meet these new challenges, not by increasing the overall levels of capital requirements—ie how much an insurance firm must put aside to meet any claims that may arise—but rather by ensuring a high standard of risk assessment and efficient capital allocation.

THREE PILLAR APPROACH

The Solvency II approach is based on three pillars which interact with each other.

Pillar I

This defines the financial resources an insurance company needs

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