Solvency I (solvency margin regime)

In December 2000, Equitable Life closes to new business while its regulatory solvency margin, computed as a percentage of its provisions, was satisfied. The regime had seen nothing. Solvency I is the set of 1973 non-life and 1979 life directives, updated in 2002, that requires European insurers to hold a minimum amount of own funds, the solvency margin. In non-life, the higher of two calculations applies: 18% of the first roughly EUR 50 million of premiums and 16% beyond, or 26% of the first EUR 35 million of average claims and 23% beyond, adjusted for the share retained after reinsurance. In life, 4% of mathematical provisions plus 0.3% of capital at risk. One third of the margin forms the guarantee fund, an absolute floor. The flaw is well known: the calculation ignores asset quality, the profile of guarantees, correlations between risks, sensitivity to rates. An insurer holding everything in risky equities and another holding government bonds had the same requirement. The crises of 2000 to 2003 and then the preparation of Solvency II drew the conclusion. It applied until December 31, 2015, and its name now serves as a foil: a regime of flat percentages, replaced by the shocks of the standard formula's risk modules.