Impact of Solvency II on Insurance industry in Croatia

Solvency II represents a new legislative and regulatory framework for insurance companies in the European Union. Solvency II is a principle-based regulation with a new risk-based capital requirements approach. Under Solvency II insurance companies should manage all risk exposures and sustain an amount of capital needed to cover their risk profile. A riskbased approach of Solvency II will align supervision with best practice trends within insurance industry and significantly improve risk management in insurance companies. Solvency II, similar as Basel II, is a comprehensive project with significant impact on insurance industry and financial sector in whole. Solvency II directive has been adopted by the European Parliament and the Council in April 2009 as the Level 1 of Solvency II implementation process, but Level 2 implementing measures and Level 3 supervisory guidance is still under way. Implementation of Solvency II is expected to take place in the second half of 2012. This paper analyses the impact of Solvency II implementation on insurance industry in Croatia. Research is conducted through comparing capital requirements under Solvency I and Solvency II regulation, examining impact on insurance companies investments and risk management process. The goal of this paper is to point out the importance of proportionality principle in implementation of Solvency II in order to provide level playing field and equal protection for policyholders no matter the size of insurance company and industry in whole, as well as contributing to preparedness of Croatian insurance industry for implementation of Solvency II.