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Prudent person principle

Article 132 of Solvency II introduces the ‘prudent person principle’, which includes provisions on how undertakings should invest their assets. This is because the absence of regulatory limits on investments should not mean that undertakings can make investment decisions without any regard to prudence and the interests of policyholders.

The requirements of Solvency II and of the Commission Delegated Regulation 2015/35 stipulate in great detail some of the key aspects of the prudent person principle, such as asset liability management, investment in derivatives, liquidity risk management and concentration risk management. The guidelines on the prudent person principle form part of the EIOPA Guidelines on the System of Governance.