Theoretical and practical issues in Solvency II

Since the 70’s the role of the insurance industry has grown in importance and various normative were released.
Solvency II is the last growing project on this subject. It is the new framework for the regulation of European insurance undertakings, that is currently discussed in order to provide an appropriate response to the changing needs of insurance regulation.
The basic ideas of Solvency II are the same of Basel II, however, while the objective of Basel II is to reinforce the soundness and stability of the international banking system, in the insurance industry, the main driver of regulation is consumer protection.
The customer protection will be guaranteed by the new Risk Management techniques adopted by the normative. The main ideas regarding this is the adoption of two capital requirements (the SCR and the MCR) and the possibility of calculating these with two approaches (the Standard Model Approach and the Internal Model Approach) Moreover, Solvency II will equally protect all the European consumers, guaranteeing the respect of the same rules through the EU.
The objective of this thesis is to analyze the specificities of the Solvency II project.
The analysis can be split in three parts, that correspond to the three following Chapters.
In the first part, we will analyze the developments faced by the insurance industry since the 70’s, we will describe the Solvency II project, its objectives, the concept of Capital Requirement, and the phases of the project. We will also hint the problems related to pension funds. In the second part we will analyze Solvency II using a ”quantitative approach”. Firstly, we will familiarize with two important concepts: the ruin probability, and the concept of ”coherent measure”. The next step is to understand how to model the SCR and the problems in its construction. Thus, we will be able to comprehend the basic ideas for constructing, at EU level, the standard approach. Finally we will discuss the creation of the internal models.
In the last part we will speak of the actual context and of the future expectancies at EU level, also summarizing the results of different researches. In Chapter 3 we will also analyze the Italian context, watching at the results from the QIS 4, and the RAS case.