Regulatory insight: Impact of government-related private loans under Solvency II

May 8, 2017

A private placement is a debt agreement where the loan is not stock exchange listed. These loans are less liquid than traditional fixed income instruments but compensate for this with an additional return and a low capital charge.

In this article we focus on private placements to, or guaranteed by, public agencies, both in the Netherlands and abroad. We show that investing in government-related private loans can lead to a significantly lower Solvency II capital charge for insurance companies, due to the underlying guarantees. As a result, the overall Solvency capital requirement (SCR) of an insurance company can be reduced by allocating assets to this category while still obtaining an attractive additional return. From a return point of view, government-related private loans are an attractive alternative to sovereign or credit portfolios.

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Author: David van Bragt

A shorter version of this article was published in Financial Investigator magazine. Click here to read the article on Financial Investigator or here to download the pdf version.

This is the third issue of our Regulatory insights. In this series we will keep you updated on the impact of regulatory developments on investments and capital management.

Click here to read the first Regulatory insight: Major impact IFRS-9 on insurance companies.

Click here to read the second Regulatory insight: Impact of mortgage investments under Solvency II.

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