Regulators confirmed once more their intention to apply a 25 per cent capital charge to real estate investments held by European pension funds and insurance companies. The 25 per cent shock factor – widely criticised for being unduly high and having the potential to divert institutional capital away from the asset class – was included in the European Insurance and Occupational Pensions Authority's (EIOPA) recommendations to the European Commission for new pension fund regulations – namely, the IORP Directive.
The release of EIOPA's draft technical specifications for a quantitative impact study of the IORP Directive comes soon after an industry consultation that prompted a joint industry response from real estate associations INREV, EPRA, BPF, Fastighetsägarna, IPF, ZIA, RICS and AREF.
Despite the European Commission claiming publicly that the IORP Directive would not 'cut and paste' rules from Solvency II insurance company regulations, the 25 per cent solvency capital requirement (SCR) appears firmly woven into both. There is potential still for both the IORP and Solvency II to be modified, but the treatment of real estate is some way down the regulators' agenda, below more politically sensitive items.
Solvency II is due to be brought into action in January 2014, but last month press reports suggested that it could be delayed further due to wrangling among EU member countries. Rumours are of a division between the German insurance industry, which would prefer to overturn Solvency II entirely, and others that have already incurred the necessary costs and resources.
Perhaps the biggest hope for opponents of Solvency II – and, by extension IORP – is that it will be to difficult to push through. Many in the industry have taken heart from the latest rumoured delay to this end.
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