European Commission asks for Solvency II capital review

By Owen Sanderson

LONDON, Oct 4 (IFR) - A Director General at the European Commission has asked the chair of European Insurance and Occupational Pensions Authority (EIOPA) to review capital charges under Solvency II, particularly for SME financing, infrastructure financing, and socially responsible investment. Securitisations serving these purposes are explicitly included.

Jonathan Faull, director general for Internal Market and Services, sent the letter last week to Gabriel Bernindo, chair of the European Insurance and Occupational Pensions Authority.

He writes: "While it is true that Solvency II had been conceived in very different economic circumstances from those we experienced in recent years, I assume that the Framework Directive adopted in 2009 is sufficiently flexible to allow insurers to adapt to the current state of the economy."

He goes on to request EIOPA to examine the calibration of capital requirements "under current economic conditions." EIOPA is being asked to co-ordinate with the European Banking Authority and the European Securities and Markets Authority, and to give the Commission feedback before February 2013.

The Association for Financial Markets in Europe (AFME) welcomed the move, which follows a long campaign by AFME to highlight poor calibration of capital charges for securitisation. Whole loans, for instance, attract much lower capital charges than senior tranches of securitisations of the same loans.

The draft capital charges for securitisations were calibrated referencing the price volatility and credit performance of the US subprime market through 2007 and 2008.

(Reporting By Owen Sanderson, editing by Anil Mayre)

((, 44 207 542 8234))