Solvency II
“EIOPA has set the bar high with regard to the regulatory requirements of insurance companies that wish to make investments in securitisations.”
While issuance has been lower in recent years, the projected issuance for 2015 was given a boost recently with the announcement of the European Central Bank (ECB) ABS Purchase Programme (ABSPP). With a willing and able market participant in the form of the ECB, coupled with the European-wide hunt for yield, we would expect ABS issuance to increase and sector spreads to tighten, despite the technical headwinds from the regulatory treatment of these securities.
In the past, a common theme among regulators in Europe was the generic treatment of ABS with little or no distinction between deals while relying heavily on rating agencies and credit ratings. This blunt the European Banking Authority (EBA) and EIOPA are currently working the risk appropriately for each type.
Given that these are ‘live’ projects, we believe that there is potential for further iterations and updates as regulators attempt to have a consolidated understanding of the sector in future.
SOLVENCY II TREATMENT OF SECURITISATIONS
a detailed list of criteria distinguishing between the two.
FIGURE 1: EUROPE SECURITISATION OUTSTANDING
500 1000 1500 2000 2500 3000 3500
0 Source: Simfa and GR-NEAM In general terms, an existing ABS will qualify for Type 1 status if it (i) is
investment grade; (ii) is listed in OECD, EEA or other robust markets; and (iii) is the most senior tranche of the deal.
There are further requirements that the underlying assets need to meet, for
example, that deals need to be backed by a pool of homogeneous underlying exposures or that they need to meet certain loan-to-value requirements. All deals that do not meet the criteria for Type 1 are designated Type 2. The risk, high quality structure and one that is not, which is key to making the capital treatment more appropriate.
In the past, the capital charges relating to these securities have been so see Figure 2).
In October 2014 the EC published revised capital charges—Type 1 risk factors were revised lower and Type 2 securities were unchanged. While the lowering of the Type 1 factors has been largely welcomed, they remain punitive when compared to similarly rated corporate holdings and also when compared to the charges calculated if an insurance entity directly held the in this latter case relates to the perceived risk of the securitisation structure and is believed by many to still be too great in the current approach.
36 | INTELLIGENT INSURER | Spring 2015
$ billion
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2014 Q3
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60