Quantifying premium risk faced by the Kenyan Insurance companies using the solvency 2 directive

Abstract

Solvency 2 is an EU Directive that is concerned with the amount of capital that European Insurance Companies must have to reduce the risk of Insolvency. It applies to all European Union insurers and reinsurance companies with gross premium incomes exceeding €5 million or gross technical provisions in excess of €25 million. It aims to strengthen EU- wide requirements on capital adequacy and risk management for insurers. Solvency 2 was developed because of the inadequacies of solvency 1. In Solvency 1 capital requirements were based on simple specified solvency margins (as is the case in Kenya) which were not risk sensitive. One of the major objectives of solvency 2 is to align capital requirements with the underlying risks faced by an insurance company.