Insurance Europe: Insurers call for refinements to facilitate more securitisation investment to underpin EU economic growth
28 September 2021
The insurance sector supports the promotion of sound securitisation and an appropriate prudential treatment, in line with the objectives of the Capital Markets Union project.
Insurance Europe has published its response to a consultation conducted by the European Commission on the functioning of the securitisation framework in the EU.
European
insurers are Europe’s largest institutional investors, with over €10tn
of assets under management. In their role as investors, insurers require
a wide range of appropriate assets in which to invest, which includes
investments in securitisations.
While the steps taken by the Commission to improve the
treatment of securitisations — eg in previous refinements to Solvency II
— are helpful, significant barriers remain for insurers to invest in
such assets. As a result, the level of investment by insurers in
securitisations remains below potential. Further policy actions are
therefore needed to increase the attractiveness of this asset class and,
by so doing, help fund the European economy.
To facilitate this, policy action should focus on:
- Improving the treatment of securitisation in Solvency II
— Capital requirements for securitisations remain too high relative to
the real risk and relative to the yield that can be earned. To tackle
this issue, insurers should be allowed to apply the dynamic volatility
adjustment to value liabilities, in recognition of the Solvency II
principle that extreme scenarios used to determine the solvency capital
requirement should be applied to both assets and liabilities.
- Lowering the burden associated with the mandatory due diligence that both issuers and investors are required to undertake
— While appropriate due diligence is vital, it is currently
disproportionate and excessive compared to the risk and complexity of
securitisations, as well as other alternative instruments, such as
covered bonds. Due diligence requirements should therefore be simplified
and allow for proportionality.
Insurance Europe
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