The structure of Pillar 1 under the Solvency II Directive and whether or not the policyholder will be better protected after its implementation

Abstract

Solvency II aims to create a more harmonised, risk-oriented Solvency regime by introducing new and stronger EU-wide requirements on capital adequacy and risk management for insurers to follow with the ultimate aim of increasing policyholder protection. The main objective of this study is to analyse the structure of the first pillar (which deals with the quantitative requirements) of Solvency II, and determine whether or not the policyholder will be better protected after the new Solvency framework will be implemented. This was done by means of two questionnaires completed by the Malta Financial Services Authority (MFSA) and the Malta Insurance Association (MIA). The questionnaires were set up in such a way as to discuss several issues brought about by the introduction of the new framework; namely, the current situation of insurance companies in Malta including how prepared the industry is and general feedback from insurance companies. The questionnaires also dealt with benefits and problems brought about by Solvency II, the calculation of the Solvency Capital Requirement (SCR) and what both the MFSA and MIA are contributing to the insurance industry to ensure the implementation of the new framework is done in the most effective way possible. In addition, a review of secondary data was conducted to help the researcher analyse several issues of Solvency II. The secondary data included existing literature available on the subject which was made up of various reports issued by international organisations as well as the Solvency II Directive. The primary and secondary data collected suggests that Solvency II will certainly fulfil its main goal of further protecting the policyholder's interests. Both on an EU level and in Malta, this goal will be fulfilled by ensuring the bodies/associations supporting insurance companies are knowledgeable enough to help and assist such companies in any way necessary and by making sure that each individual aspect of the three pillars of Solvency II is implemented with the policyholder's protection in mind.