Dear friend,
What a week! First the European Commission (EC) releases the revised delegated acts on Solvency II, then the Prudential Regulation Authority outlines its guidance on the matching adjustment. And for good measure, the Financial Stability Board also puts out guidance on resolution regimes for systemically important insurers. It doesn't rain...
So much to digest, but for the time being we'll focus on the big beast here, the delegated acts. Mercifully, it appears that the latest version is not substantially different from its predecessor. What's interesting of course is those telling areas where the EC has decided to introduce some changes, and it would seem that here at least a modicum of good sense has been applied for once – especially with regard to insurance investments.
In brief the EC has introduced measures to incentivise investments in long-term assets, in particular infrastructure. Insurers investing in infrastructure debt through project bonds are allowed to treat these as corporate bonds, even when the credit risk is tranched.
The EC has also bowed to pressure to remove the capital-bias against investments in securitised assets. As such the capital charges imposed on some tranches of high-quality securitisations under the standard formula have been reduced.
Sensible moves, and ones which indicate a degree of pragmatism from the authorities. One suspects that the intention behind the moves is more part of a wider desire to support the rehabilitation of the capital markets and the wider economy than to placate the insurance industry, but we are not going to complain.
Let's hope that more of this sort of pragmatism will be evident as we move ever closer to the new solvency regime.
Marcus Alcock
Editor, InsuranceERM
