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: Strategies and solutions for unlocking value from unstructured data

Unstructured data accounts for a growing proportion of the information that capital markets participants are using in their day-to-day operations. Technology – especially generative artificial intelligence (GenAI) – is enabling organisations to prise crucial insights from sources – such as social media posts, news articles and sustainability and company reports – that were all but...

BLOG

Regulations in the Balance as Institutions Remain Sustainability-Focussed: ESG Summit London Review

Despite a perception that ESG is in retreat around the world, financial institutions continue to take the issue very seriously as a matter of risk management, a trend that continues to exert an influence on the data demands of organisations. It isn’t even the compliance imperatives of organisations operating in heavily regulated parts of the...

EVENT

Buy AND Build: The Future of Capital Markets Technology

Buy AND Build: The Future of Capital Markets Technology London examines the latest changes and innovations in trading technology and explores how technology is being deployed to create an edge in sell side and buy side capital markets financial institutions.

GUIDE

AI in Capital Markets: Practical Insight for a Transforming Industry – Free Handbook

AI is no longer on the horizon – it’s embedded in the infrastructure of modern capital markets. But separating real impact from inflated promises requires a grounded, practical understanding. The AI in Capital Markets Handbook 2025 provides exactly that. Designed for data-driven professionals across the trade life-cycle, compliance, infrastructure, and strategy, this handbook goes beyond...