The governance of small and non-complex insurance undertakings under the Solvency II review

Abstract

The Solvency II Directive established a risk-based regulatory framework for insurance and reinsurance undertakings within the European Union (EU) to enhance policyholder protection, financial stability, and regulatory harmonisation. However, its stringent requirements impose significant administrative and financial burdens on smaller insurers. To address this challenge, the revised Solvency II framework introduced the category of “small and non-complex insurance undertakings” (SNCUs) to ensure a proportionate regulatory approach. SNCUs benefit from simplified Solvency Capital Requirement (SCR) calculations, tailored governance structures, and reduced reporting obligations while maintaining essential prudential safeguards. The classification of SNCUs relies on quantitative and qualitative criteria, ensuring a nuanced distinction between insurers based on their size, business model, and risk profile. This paper examines the governance and regulatory implications for SNCUs, assessing the balance between regulatory efficiency and financial stability. Additionally, it discusses ongoing challenges, such as potential risks arising from simplified capital requirements, governance flexibility, and reduced transparency in reporting. As the framework continues to evolve, secondary legislation and supervisory guidance will be crucial in refining the proportionality measures to ensure they remain effective without undermining regulatory objectives.