Implementation of internal audit according to the Solvency II Directive
in the national legislation of the Republic of Serbia and BiH


The European Union has introduced the Solvency II Directive as a need for better regulation and greater financial stability in the insurance industry, the implementation of which began on 1 January countries for which the implementation of this directive is not mandatory, as they are not members of the European Union, are committed to harmonizing national regulations and laws governing insurance supervision and management by Solvency II. It prescribes risk-based supervision, clearly defines the principles on which insurance companies should work and operate: capital adequacy, technical reserves, risk marginsand reporting. It includes four key functions: risk management, compliance, internal audit, and actuarial. In the new legal framework, key office holders are subject to strict regulations regarding professional qualifications and personal reliability. Internal audit is prescribed as one of the four key functions. Solvency II highlights the independent nature of the internal audit. The key function of internal audit must be objective and independent of other operational activities, and thus has a specific role in the company’s management system. The internal audit function includes evaluating the adequacy and effectiveness of the internal control system and other elements of the management system. The independence of internal audit from operational functions is ensured by the company prescribing in its internal acts that internal audit directly reports to the management on all findings and recommendations of internal audit. The paper examines the national legislation in the field of internal audit in the insurance company of the Republic of Serbia and Bosnia and Herzegovina. Based on the research, conclusions were reached on mutual compliance of rules of these countries, and compliance with Solvency II.