Solvency II: the dilemma

At the risk of making a generalisation, the Solvency II framework is very specific with respect to its ultimate evaluation criterion: 99.5 percent Value-at-Risk (VaR). Companies can derive their estimates of VaR using a standard model, as described in the European Insurance and Occupational Pensions Authority (EIOPA) Technical Specification papers, for example, or they can develop their own model. In a sense, these two options characterise the subtle difference between a ‘rules-based’ and ‘principles-based’ approach.