EIOPA proposes changes to capital requirements for debt securitisation

The European Insurance and Occupational Pensions Authority (EIOPA)
published today the Technical Report on Standard Formula Design and
Calibration for Certain Long-Term Investments.

The Report was prepared upon the request of the European Commission. In
view of the current economic situation, its purpose was to examine whether
the capital requirements for certain long-term investments under Solvency
II can be reduced without jeopardising the prudential nature of the
regime.

The key proposal of EIOPA is to introduce a more granular treatment of
securitisations. Instead of the currently proposed uniform 7% spread risk
charge for AAA-rated securitisations, EIOPA recommends to decrease the
charges for less risky issues to 4.30% while increasing them for riskier
ones to 12.50%.

For identifying less risky securitisations EIOPA has developed a set of
criteria related to the structure of securitisation, the quality of the
underlying assets, the underwriting processes and the transparency for
investors.

The Report alsoconfirms the currently proposed risk charges for a number of
investments including private equity, loans to small and medium sized
enterprises and socially responsible investments.

The study was conducted with the input from a range of experts from
industry, regulatory bodies and the academic world. In the course of the
research EIOPA was confronted with a challenge that is typical for the
assets analysed - the lack of comprehensive, reliable and publicly
available performance data (especially for infrastructure investments).
The Authority intends to work on closing these data gaps in cooperation
with the relevant parties.

Click here to access the Report: "Discussion paper on Standard Formula
Design and Calibration for Certain Long-Term Investments
(Link:
https://eiopa.europa.eu/consultations/consultation-papers/2013-closed-consultations/april-2013/discussion-paper-on-standard-formula-design-and-calibration-for-certain-long-term-investments/index.html
)"


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