Structure of the Solvency II directive, separating quantitative capital requirements, governance and supervisory requirements, and disclosure to the public and the supervisor.
Solvency II is not an enlarged capital calculation, it is a regime in three parts each of which covers a blind spot of the other two. Pillar one carries the quantitative requirements: economic valuation of the balance sheet, technical provisions as best estimate plus risk margin, SCR and MCR. Pillar two carries governance and supervisory review: risk management system, four key functions, ORSA, fit and proper requirements for directors, and the supervisor's power to impose a capital add-on when the risk profile departs from the assumptions. Pillar three carries transparency: a public solvency and financial condition report, a confidential report to the supervisor, and periodic quantitative templates. The reason for the structure fits in one sentence: a compliant solvency ratio produced by failing governance proves nothing, and a figure nobody can check disciplines nobody. The three pillars are therefore inseparable, and compliance with the first alone is not compliance.
Directive 2009/138/EC was adopted on November 25, 2009 and has applied since January 1, 2016, after several delays tied to transposition and the delegated regulation. The structure follows Basel II for banks, adopted in 2004, adapted to insurance liabilities: it is pillar two, not pillar one, that carries ORSA, because an undertaking's own overall solvency need does not reduce to a common formula.
architecture en trois piliers, pilier 1, pilier 2, pilier 3, three-pillar structure