Risk Governance in the Second Pillar of Solvency II Framework

The chapter focuses on the prudential supervisory provisions ensuing from the second pillar of Solvency II. Starting from the assumption that simple quantitative measures are not always sufficient to identify and appropriately define the undertaking solvency profile, the second pillar establishes qualitative requirements to address risks not specifically mitigated by the solvency capital requirements. The chapter, after focusing on the main provisions on corporate governance, also analyses how Solvency II encourages insurance undertakings to adopt a global approach in order to strengthen the processes of corporate risk governance and to systematise the key four functions: risk management, compliance, actuarial and audit function which bolster the “three lines of defence” structure in the system of risk governance.