Equivalence and Insurance

Abstract

The concept of equivalence is present in various forms in the Solvency II framework, the EU prudential regulatory framework for insurance and reinsurance. While equivalence in Solvency II does not grant, or should not be equated to, market access for market participants that make use of the equivalence instruments within Solvency II, equivalence plays an important role in insurance, in particular in the solvency capital calculation at group level, in group supervision and for the recognition of reinsurance under Solvency II. The conclusion can be drawn that equivalence is an essential building block of the current framework. The application of equivalence in the framework and in practice is discussed in this contribution, and while the application might be complex, it is indispensable. At the same time, other mechanisms, either within the Solvency II framework or more broadly at international level, influence the current state and might affect the evolution of equivalence going forward. While, inherently, there is a political component to equivalence as well, the instruments remain firmly based in (detailed) Solvency II rules and are applied accordingly in practice.