18 May 2018

Insurance Europe response to the Commission proposal for reviewing Solvency II capital charges for STS securitisations welcomed

Insurance Europe has responded to the European Commission’s consultation on revised calibrations for simple, transparent and standardised (STS) securitisations in the Solvency II regulatory framework that governs insurers.

Specifically, the industry supports the encouragement of sound securitisations to help fund the European economy and help achieve the objectives of the Capital Markets Union project. The recent Regulation identifying STS securitisations was a very positive step. 

Equally important, over recent years the insurance industry has highlighted that the extremely and unnecessarily punitive Solvency II capital requirements represent a barrier to investing in this asset class. It has advocated for more risk-sensitive capital charges, able to better reflect the real risks that insurers are exposed to when investing. Against this background, the current EC proposal to amend Solvency II is very much welcome and its intended implementation and application in parallel to the STS securitisation framework is supported.

As a more general point, it is however worth noting that the proposed Solvency II capital requirements remain significantly high compared to the actual/historical credit risk of this asset class. For example, the actual cumulative default experience of AA securitisations during the financial crisis was 0.29% in aggregate over a 6 year period (2007-2013). While this may not be quite a 1-in-200 event, it is generally considered to have been one of the worst financial crises over the last centuries. At the same time, the proposed Solvency II capital charge for a 5-year AA securitisation is 6%, which is 20x higher than the actual “worst case losses” experienced over the recent financial crisis period. The proposed calibrations are therefore more appropriate, but still too conservative.

Looking ahead, Insurance Europe would support further investigations of the methodology and results of Solvency II calibrations of this asset class, as part of the Solvency II 2020 review. 

Full response

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