An updated independent study confirms that the current solvency capital requirement (SCR) of 25% for European real estate investment under the Solvency II Directive, including through funds, does not reflect the true volatility of real estate investment in Europe. As a result, the amount of capital that must be set aside to cover potential losses from real estate investment is higher than is necessary for sound prudential management.
The latest report, published on 7 March by MSCI, updates the firm’s original study from 2011, adding six years to European investment market data and bringing the capital risk analysis up to December 2015. It also includes data from five additional countries. As a result, the report offers a more comprehensive and robust basis for determining, as in 2011, that the appropriate real estate SCR need be no more than 15% for all of Europe. In addition, a new calculation of volatility that excludes the UK is 12% based on European composites.