Both Solvency I and II use the Balance Sheet of an insurance company as a starting point for the Solvency assessment. But where Solvency I is mainly based on statutory figures reported in the financial statements and focused on liabilities, Solvency II aims at capturing the true economic value of the balance sheet items.

This approach is independent of the statutory accounting and considers the asset side of the balance sheet next to the liabilities. To achieve this, the Industry proposes using a ‘Total Balance Sheet Approach’. Implications of this approach are that:

• Available solvency capital is given as the difference between the market-consistent values of assets and liabilities and

• Solvency capital requirements are calculated based on a comprehensive analysis of risks taking into account the interaction between assets and liabilities, risk mitigation and, where applicable, diversification.