Risk Management and Financial Institutions. Hull John C.

applies to insurance companies throughout all member countries. The framework that has existed since the 1970s is known as Solvency I. It was heavily influenced by research carried out by Professor Campagne from the Netherlands who showed that, with a capital equal to 4 % of policy provisions, life insurance companies have a 95 % chance of surviving. Investment risks are not explicitly considered by Solvency I.

      A number of countries, such as the UK, the Netherlands, and Switzerland, have developed their own plans to overcome some of the weaknesses in Solvency I. The European Union is working on Solvency II, which assigns capital for a wider set of risks than Solvency I and is expected to be implemented in 2016. Both Solvency I and Solvency II are discussed further in Chapter 15.