The European Union’s regulatory framework for insurance solvency is Solvency II. It is designed to ensure that insurers and reinsurers hold enough capital and manage risks well enough to protect policyholders and remain financially stable.
Solvency II is built around three broad pillars. The first covers quantitative requirements, including capital calculations for underwriting, market, credit, and operational risks. The second addresses governance, supervision, risk management, and the insurer’s own assessment of its solvency needs. The third emphasizes supervisory reporting and public disclosure, improving transparency for regulators, investors, and policyholders.
The framework is rooted in Directive 2009/138/EC and became applicable in 2016. It replaced the earlier Solvency I regime, which used simpler and less risk-sensitive capital rules. Basel III is primarily a banking framework, while Dodd–Frank is a major U.S. financial-reform law; neither is the EU’s insurance-solvency system.