European Mortgage Federation newsletter: Solvency II – Covered Bonds’ New Best Friend?
02 June 2010
Solvency II will produce a more consistent solvency standard across insurers in the European region. Importantly, Solvency II marks the first time a pan-European regulatory regime will force insurers to hold capital against their investment portfolio.
Solvency II is set to become a key driver of demand from European insurers for covered bonds: their typically AAA ratings qualifying them as a very efficient asset class for this component of the investor base.
This should develop a valuable additional source of investment at a time when there is considerable discussion about other key components of the covered bond investor base.
The ECBC article in the previous edition of Mortgage Info highlighted the importance to the covered bond sector of a strong bid from bank portfolios and the extent to which future banking regulation, in the shape of Basel III, will influence that bid. Publicly available data on the distribution of new covered bond benchmarks launched in 2010 (minimum size EUR 1 billion), shows bank investors accounting for an average of 41% of allocations. Institutional investors account for a similar average based on all deals, but a markedly higher 57% of benchmarks with a maturity of 10 years or more. As Basel III’s Net Stable Funding Requirement will encourage banks to source greater amounts of longer-term funding, this article examines what we expect will be a key driver of demand from the institutional investor base – specifically from insurance companies and asset managers managing insurance funds.
While the banking sector has seen a plethora of new regulatory initiatives launched over the last eighteen months, a revamp of the capital and solvency requirements for the insurance sector has been progressing steadily over several years. Indeed, the European Commission (EC) initiated the Solvency II project in 2000 to implement a fundamental change to the current European insurance solvency framework.
It is intended that Solvency II will produce a more consistent solvency standard across insurers in the European region, while also resulting in capital requirements that portray more accurately the risks being run by insurers. Importantly, Solvency II marks the first time a pan-European regulatory regime will force insurers to hold capital against their investment portfolio.
EMF publishes a new Study on the Cost of Housing in Europe
Evidence from the Study shows that the transaction costs of purchasing a property in the EU14 amounted on weighted average, to 5.3% of a typical property price in 2008. These costs ranged from 1.0% in Lithuania to 13.4% in Belgium. Generally, these are higher in Southern Europe while they are lower in Northern Europe and in the Baltic States. Property purchase costs account for the largest part of transaction costs, and the largest component of these by far is taxes. On weighted average, taxes amount to 2.8% of the value of transaction costs in the countries surveyed. In many countries there is no tax on taking out a mortgage loan. In the countries where they exist, they account for a small share of the total loan transaction costs. To sum up, assuming 100 as the burden of total transaction costs in the EU14, 79.2% of these costs is related to the property purchase, and 20.8% to the associated mortgage loan. A further breakdown of this data reveals that property taxes account for 52.8% of total transaction costs.
The following issue are also presented :
· EMF publishes a new Study on the Cost of Housing in Europe
· Commissioner Barnier & Commissioner Dalli on Policy Directions 2010
· Improved conditions for covered bonds in Sweden
· News in brief
· Agenda
© EMF
