Capital requirements of Solvency II have come, rightly or wrongly to define the new regulatory regime which will come into play in 2016. At least we haven’t gone to the extreme of banking regulation, where the overarching directive is called a Capital Requirement Directive, or CRD.
But I contend that the emphasis given in European insurance regulation to quantitative requirements has gone overboard, and that the particular quantitative requirements of Solvency II are ill conceived. The capital requirements set up by Solvency II are clearly too complex. Even the standard formula is in fact as complex as a default internal model. To what purpose, however?