Solvency II regulations could restrict insurers’ appetite for investing in highly rated and historically strongly performing securitisations, according to rating agency Fitch.
The agency has warned that the new regulations could lead to disproportionately high capital charges, and in the process, restrict funding opportunities for European banks.
The proposed capital charges are also a multiple of the proposed Basel III capital charges for banks, largely because they are reflective of the volatility of credit spreads rather than probability of default, according to the agency.
Under the new rules insurers, who typically would seek to hold long dated assets to match their long dated liabilities, would be incentivised to buy shorter dated assets with lower market price volatility, argues Krishnan Ramadurai, managing director in Fitch's credit policy group.
“The difference between the approaches under Basel III and Solvency II could create an imbalance of investment incentives between banks and insurance companies,” he said.
“It would appear counterintuitive to force insurers to mark to market assets that they seek to hold to maturity. Furthermore, the calibration of market volatility for all securitisation exposures is against a small, highly stressed asset class that no longer exists in the market. It effectively ignores more significant and stable asset classes such as European RMBS.”
Solvency II, Fitch, funding cuts
