Solvency II review: EIOPA delays updating solvency capital requirements for real estate citing scarce necessary data

EIOPA launched a consultation last week on technical changes ahead of a 2020 review of the Solvency II rules, in an effort to evolve the three-year old capital rules through “one of evolution rather than revolution”.

Included in the 878-page consultation paper is a section on ‘Property Risk’ (pages 366-370), which addresses the solvency capital requirement (SCR) for real estate, which is currently 25%.  In the ‘Advice’ section which concludes this part of the paper, EIOPA states the following:

  • Given the scarce available data and the on-going analyses, EIOPA is, at the time of this draft opinion, not in a position to provide the European Commission with a definitive advice implying a change to the current approach.
  • Therefore, EIOPA will continue its analyses towards a potential change to the capital requirement calculation method for this risk.

Since 2011, INREV has contributed extensive, detailed data and background information to help EIOPA measure the volatility of real estate investments across Europe.  INREV will continue to work with EIOPA, and will respond to the consultation paper ahead of the closing deadline of 15 January 2020.

Jeff Rupp, INREV’s Director of Public Affairs, explains:

“We welcome the fact that EIOPA has paid such close attention to real estate in this consultation paper and that it is continuing to reflect on the all-important issue of the solvency capital requirement (SCR) for our industry.  We had hoped EIOPA might have reached a conclusion on the standard model SCR by now. 

“However, we’re very pleased that it has recognised the inadequacy of determining a 25% SCR on the back of data that comes predominantly from one country – the UK – which distorts the reality for the wider European real estate universe.  EIOPA has also acknowledged that the data paints an inaccurate picture of homogeneity across real estate sectors.  We’re pleased that EIOPA has committed to undertaking further analysis.

“We will continue to work with EIOPA and the European Commission, as well as with national real estate associations and national regulators across Europe, to provide as clear an understanding of the available data and methodologies as possible.  We hope this will enable EIOPA to reach a final conclusion on an SCR that better reflects the true volatility of European real estate investments.”

Insurers have until January 15 to provide feedback on the updates to the Solvency II rule book. The watchdog said it plans to publish its final opinion on the rules in June 2020.

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