“The Standard Formula” podcast presents listeners with a look at the supervision framework under Solvency II, and examines its purpose to protect policyholders while also promoting the safety and soundness of insurers. Host Rob Chaplin once again leads the discussion and is joined by colleague James Pickstock.

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Top takeaways from this episode

● Supervision Framework: Under Solvency II, regulators in an insurer’s home jurisdiction review the insurer's operations and continued regulatory compliance.

● Principle of Proportionality: While Solvency II aims to ensure that supervision is effective but not burdensome, insurers – especially small ones that don’t pose significant risks – have suggested that the regime hasn’t reduced the regulatory burden.

● Can the Firm Cause Harm? The Prudential Regulation Authority (PRA) categorizes firms according to their potential to harm the stability of the U.K. financial system.

● Capital Add-Ons: If a regulator decides that action needs to be taken, these are among the more powerful tools in a supervisor's regulatory arsenal, and imposing them is not taken lightly. Rob outlines the four situations where capital add-ons could be imposed.

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