The concept of equivalence under Solvency II determines to what extent (re)insurance entities outside Europe can operate within the European Union (EU) while relying solely on their local solvency standards. The ability to operate in the EU is a significant issue that impacts multinational (re)insurance companies and groups.
For operations in equivalent countries, the recognition of their local solvency regimes is more straight-forward.
However, non-equivalence imposes a more complex solvency management for groups operating in these environments and who wish to transact European business.
Some (re)insurers have been pushed to locate their operations in the European Economic Area (EEA) when they previously had no presence in any country subject to Solvency II.
The objectives of Solvency II include improved consumer protection and modernized supervision that shifts supervisors’ focus from compliance and capital monitoring to evaluating insurers’ risk profiles and the quality of risk management processes.
While Europe initiated the ideas embodied in Solvency II, other jurisdictions have taken this example and implemented their own risk driven regulatory regimes. As a result, Solvency II has led to a new global solvency standard. The Own Risk and Solvency Assessment (ORSA) principle has created a framework for the risk and risk mitigation environment, which is now accepted globally, from the United States and Bermuda and extending to Asian countries.