Directive 2009/138/EC (Solvency II) establishes a harmonised prudential framework for insurance and reinsurance across the EU. It mandates market‑consistent valuation of assets and liabilities, harmonised technical provisions, and a two‑tier capital regime: the risk‑sensitive Solvency Capital Requirement (SCR) calibrated to a 99.5% one‑year Value‑at‑Risk, and a simple Minimum Capital Requirement (MCR) with defined floors. Own funds are classified into three tiers with eligibility limits; treatment of surplus funds, ring‑fenced arrangements and reinsurance recoverables is prescribed. The Directive embeds proportionality, supervisory review and public disclosure obligations and clarifies auditors’ reporting duties.

It imposes robust governance, risk‑management and outsourcing standards, requires an own‑risk and solvency assessment (ORSA) and sets strict criteria for internal models and model validation. Group supervision is reinforced by colleges and a designated group supervisor, with rules on intra‑group transactions, concentrations and cross‑border cooperation. Supervisors have tools for capital add‑ons, recovery plans, reorganisation and winding‑up; CEIOPS (now EIOPA) is charged with promoting supervisory convergence and advising on third‑country equivalence.