About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

Fitch: Solvency II Set to Reshape Asset Allocation and Capital Markets

Subscribe to our newsletter

Fitch Ratings says in a newly-published report that Solvency II, the new regulatory regime for European insurers from 1 January 2013, is poised to transform how insurers allocate their assets, leading to shifts in demand and pricing for several asset classes.

The report, entitled “Solvency II Set to Reshape Asset Allocation and Capital Markets”, highlights that the new rules will require insurers to value asset and liabilities at market value in determining their solvency position.

“Solvency II will force insurers to set aside explicit capital to reflect short-term volatility in the market value of the assets they hold,” says Clara Hughes, Director in Fitch’s Insurance team. “Insurers’ asset allocations will be heavily influenced by these capital charges, which vary significantly by asset class, quality and duration. This is a fundamental change from current asset allocations, which are driven by expected long-term investment returns.”

The main impacts would be a shift from long-term to shorter-term debt; an increase in the attractiveness of higher-rated corporate debt and government bonds; diversification of large asset holdings; an increase in the attractiveness of covered bonds; a preference for assets based on the long-term swap rate and a shift from short-dated paper to deposits.

European insurers are the largest investors in the European financial markets, holding EUR6.7trn of assets including more than EUR3trn of government and corporate debt.

Fitch expects to see better duration matching with derivatives such as swaps and floors and an increase in downside protection to mitigate the impact of the new capital charges. Fitch also anticipates an increase in financial engineering to create Solvency II-friendly assets such as reverse repos and structured notes, which can optimise return on capital

However, Fitch considers it unlikely that large-scale reallocations will happen in the short term as transitional arrangements are likely to phase in implementation of Solvency II over several years.

Insurers will also have the option to calculate their capital position using an internal model rather than the proposed standard formula. This could offset the impact of any capital requirements in the standard formula that do not accurately reflect the risk in insurers’ portfolios.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: End-to-End Lineage for Financial Services: The Missing Link for Both Compliance and AI Readiness

The importance of complete robust end-to-end data lineage in financial services and capital markets cannot be overstated. Without the ability to trace and verify data across its lifecycle, many critical workflows – from trade reconciliation to risk management – cannot be executed effectively. At the top of the list is regulatory compliance. Regulators demand a...

BLOG

Juniper Square Seeks to Democratise Private Markets with Data

Juniper Square has, from a virtual standing start, become one of the fastest-growing providers of data and investor services to private-market participants. Earlier in the summer it received a US$130 million series D capital injection that underscored its prospects and valued the company within unicorn territory. That’s unsurprising for a company whose platform has, since...

EVENT

AI in Capital Markets Summit London

The AI in Capital Markets Summit will explore current and emerging trends in AI, the potential of Generative AI and LLMs and how AI can be applied for efficiencies and business value across a number of use cases, in the front and back office of financial institutions. The agenda will explore the risks and challenges of adopting AI and the foundational technologies and data management capabilities that underpin successful deployment.

GUIDE

Regulatory Data Handbook 2025 – Thirteenth Edition

Welcome to the thirteenth edition of A-Team Group’s Regulatory Data Handbook, a unique and practical guide to capital markets regulation, regulatory change, and the data and data management requirements of compliance across Europe, the UK, US and Asia-Pacific. This year’s edition lands at a moment of accelerating regulatory divergence and intensifying data focused supervision. Inside,...