18 November 2015 Insurance

Work needed on European Commission framework: Insurance Europe

Insurance Europe, the European insurance and reinsurance federation, has announced a number of key messages relating to the European Commission’s proposal for a framework for simple, transparent and standardised (STS) securitisation.

The organisation says it supports the encouragement of good securitisation to help fund the European economy.

“Enhanced standardisation, transparency and quality of securitisations (including risk retention requirements) will support insurers’ access and interest in this asset class. More risk-sensitive capital charges are needed in order to achieve a sustainable securitisations market in the EU," it said.

“In this respect, the current Solvency II treatment of securitisations significantly exaggerates the risks that insurers are exposed to when investing in these assets.”

However, Insurance Europe says it feels that several elements of the STS framework need further consideration.

It said that the scope of the review of Solvency II capital requirements should not only cover junior tranches of STS securitisations, but rather all tranches of STS securitisations, both senior and junior.

The firm also said the commission’s work should focus on changes to the current Solvency II approach and that accreditation of securitisations which are in line with qualifying criteria should be carried out by an independent third-party to avoid any conflicts of interest and encourage investors’ trust in the assessment.

Lastly it said due diligence requirements, as set out in the draft regulation, should be clarified to ensure that each third party involved in the process is not required to duplicate all due diligence and record keeping requirements, as this would significantly increase the cost of buying and holding securitisations without providing any added benefit to investors or financial stability.

Insurance Europe suggested a more risk-sensitive approach is taken, which would also be in line with a look-through methodology.

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