Real estate investment under Solvency II

On 10 May INREV published a snapshot of the recent MSCI Solvency II update which confirms that the standard model real estate SCR of 25% does not reflect the volatility of real estate investment in Europe. We are using the new data to encourage policy makers to adopt an SCR that more accurately reflects the documented risk.

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Updated study of real estate volatility challenging Solvency II SCRs released

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.

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Solvency II capital requirements to be reviewed within five years

The final text of the Solvency II agreement has been published. In addition to the volatility dampener and matching adjustment reported earlier, the agreement also includes a requirement to review the directive’s Solvency Capital Requirements within five years, including the 25% standard charge for real estate, which may give some hope over the longer term.

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EIOPA Consultation Paper, March 2013

Public consultation on proposed guidelines to help national authorities prepare for Solvency II. Major topics addressed include corporate governance, risk management, own risk, submission of data to national authorities (including solvency capital), and pre-application of internal models.

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New Solvency II Vote Delay

The European Parliament vote on the Omnibus II directive, which is needed to bring Solvency II into force, has been delayed once again, this time until 22 October 2013.

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Commission Declines to Order Property Solvency Capital Charge Recalibration

Last week, Jonathan Faull, Director General at the European Commission responded to the December joint industry letter supported by 13 real estate and fund associations urging the inclusion of real estate in the recalibration of solvency capital charges for long-term investments under Solvency II being conducted by EIOPA.

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Response by Jonathan Faull, January 2013

Jonathan Faull, Director General at the European Commission's response to the December joint industry letter. Faull notes that EIOPA is free to recalibrate the solvency capital charge for real estate as part of its recalibration of solvency capital charges for long-term assets such as infrastructure, but declined to request EIOPA to include it in the exercise.

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Industry Coalition Argues for Recalibration of Real Estate Solvency Charge

On Wednesday 5 December INREV together with EPRA and eleven other real estate organisations have jointly reacted to a letter by Jonathan Faull, Director General for Internal Market and Services to EIOPA Chairman, Gabriel Bernardino. In his letter Mr Faull requested EIOPA to examine whether the calibration of capital requirements for investments in certain assets under the envisaged Solvency II regime should be adjusted in light of the current economic conditions.

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Briefing, October 2012

Brief update of Solvency II’s  main features, open issues and next steps.

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EIOPA Publish Outcome of Public Consultation on Solvency II

On 10 July EIOPA published its final report on the reporting and disclosure requirements under Solvency II. According to EIOPA the report “reflects a balanced approach towards costs and benefits, and contributes to an efficient risk-based Supervisory Review Process.”

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