Inaccurate risk calibrations under Solvency II could prevent European insurers from investing in bonds. The sector’s main trade group is already planning how to push for its revision.
The EU’s revised prudential regime for insurance funds takes effect on January 1, more than 15 years after the rewrite of Solvency I began. There is strong industry support for almost all aspects of the revised framework, with one glaring exception: credit risk regarding corporate bonds.
Solvency II calculates this under a sub-module and with reference to changes in the bonds’ credit spreads, and therefore value. But given insurers typically invest along timelines that match their long-term liabilities, a metric based on short-term changes is not appropriate.
“Risk-wise, that is not the reality. And it leads to problems with the measuring system,” said Olav Jones, deputy director of Insurance Europe, speaking at an S&P Capital IQ...