Solvency II is built on a three-pillar structure that forms the foundation of its regulatory framework. These 3 Solvency II pillars provide a holistic approach to supervising insurance companies, combining quantitative requirements, governance expectations, and transparency obligations. Together, they create a comprehensive system that aims to ensure the financial health of insurers and protect policyholders across the European Union.
The three Solvency II pillars work in tandem to capture the full scope of risks faced by insurers. While each pillar addresses a different aspect of the business, they are interconnected and reinforce one another. This design reflects a shift from the more formulaic solvency rules of the past to a modern, risk-based regulatory system.
The first pillar focuses on financial resilience by setting out capital requirements that are proportionate to the risk an insurer takes on. It ensures that companies maintain a sufficient financial buffer to absorb unexpected losses and continue meeting their obligations. This part of the framework provides the numerical foundation for solvency assessment, rooted in sound actuarial and financial principles.
The second pillar addresses the internal governance and risk management processes within an insurance company. It emphasizes that managing risk is not just a compliance exercise but a central part of running a sustainable business. Under this pillar, supervisors expect firms to embed strong oversight and decision-making frameworks that support long-term stability.
The third pillar is about transparency and disclosure. By requiring insurers to share information both with regulators and the public, it promotes accountability and helps build trust in the sector. This openness allows stakeholders to make more informed decisions and puts additional discipline on firms to maintain robust financial and operational practices.
Together, the three Solvency II pillars encourage insurers to not only meet regulatory requirements but to understand and manage their risks more effectively. They support a culture of responsibility and resilience, which in turn strengthens the insurance market as a whole. This high-level structure continues to serve as the backbone of insurance supervision in Europe and influences regulatory thinking globally.