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Solvency 2 is a fundamental review of the capital adequacy regime for the European insurance industry. It aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current Solvency 1 requirements.

Solvency 2 will apply from 31 October 2012 to all insurance and reinsurance firms with gross premium income exceeding 5m euros or gross technical provisions in excess of 25m euros.

Solvency 2 has three central elements or ‘pillars’ relating to:

1. Demonstrating adequate financial resources.
2. Demonstrating an adequate system of Governance.
3. Public disclosure and regulatory reporting requirements.

Further details on Solvency 2 can be found on FSA’s website or the European Commission’s website. 

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