The new system would introduce more sophisticated solvency requirements for insurers, in order to guarantee that they have sufficient capital to withstand adverse events, such as floods, storms or big car accidents. This will help to increase their financial soundness. Currently, EU solvency requirements only cover insurance risks, whereas in future insurers would be required to hold capital also against market risk (e.g. a fall in the value of an insurer's investments), credit risk (e.g. when debt obligations are not met) and operational risk (e.g. malpractice or system failure). All these risk types pose material threats to insurers' solvency but are not covered by the current EU system.
What this means to you:
Smaller insurers might not be able to compete under the new regime but, because they have a book of business, would have value to an acquirer.
You're welcome, but don't thank me, thank Peter Vipond as quoted in the Times of London:
The new rules, which are designed to enable insurance companies to sharpen up, and limit, the amount of capital that they have to hold to cover their risks, should make it easier for insurers to get involved in cross-border mergers and acquisitions, Peter Vipond, the director of financial regulation of the ABI, said.
“In insurance, it is often difficult to extract value,” he said. “In principle, we would expect Solvency II to generate more M&A.”From Europa.eu
and the Times, link above.