Interest from insurance companies in mortgage investments has surged in recent years. In this article, we focus on the impact of these investments for the capital requirements of insurers.
The capital requirement framework for European insurance companies is known as Solvency II. Investing in mortgages moves risk from market risk to default risk under Solvency II. This can lead to a significantly lower Solvency II capital charge for an insurance company. At the same time, the expected return will typically increase, making an investment in mortgages also attractive from a return perspective.
Author: David van Bragt
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This is the second 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.
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