Long-term investment

Insurers call for refinements to facilitate more securitisation investment to underpin EU economic growth


Insurance Europe has published its response to a consultation conducted by the European Commission on the functioning of the securitisation framework in the EU.

European insurers are Europe’s largest institutional investors, with over €10tn of assets under management. In their role as investors, insurers require a wide range of appropriate assets in which to invest, which includes investments in securitisations. The insurance sector therefore supports the promotion of sound securitisation and an appropriate prudential treatment, in line with the objectives of the Capital Markets Union project. 

While the steps taken by the Commission to improve the treatment of securitisations — eg in previous refinements to Solvency II — are helpful, significant barriers remain for insurers to invest in such assets. As a result, the level of investment by insurers in securitisations remains below potential. Further policy actions are therefore needed to increase the attractiveness of this asset class and, by so doing, help fund the European economy. 

To facilitate this, policy action should focus on:

  • Improving the treatment of securitisation in Solvency II — Capital requirements for securitisations remain too high relative to the real risk and relative to the yield that can be earned. To tackle this issue, insurers should be allowed to apply the dynamic volatility adjustment to value liabilities, in recognition of the Solvency II principle that extreme scenarios used to determine the solvency capital requirement should be applied to both assets and liabilities. 
  • Lowering the burden associated with the mandatory due diligence that both issuers and investors are required to undertake — While appropriate due diligence is vital, it is currently disproportionate and excessive compared to the risk and complexity of securitisations, as well as other alternative instruments, such as covered bonds. Due diligence requirements should therefore be simplified and allow for proportionality.