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Financing of the EU economy - Is the EU securitization proposal up to the challenges?

Insurers and securitisation

By Nava Mario - Director for Regulation and Prudential Supervision of Financial Institutions, DG for Financial Stability, Financial Services and Capital Markets Union, European Commission

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Securitised assets can provide EU insurers with the diversified long-term investment opportunities that they need in the low yield environment. The revival of the European securitisation market is therefore essential, and was identified as a political priority for the Commission within the Capital Markets Union project. Learning the lessons from the financial crisis, the Commission’s proposal adopted in September 2015 identifies simple, transparent and standardised (STS) securitisation products. The approach of the Commission puts insurers at the centre of the securitisation market, along with banks and funds.

Under the Commission proposal, insurers would benefit from the same definitions, safeguards and STS qualification as other institutional investors. Due diligence, risk retention and transparency rules would be harmonised across sectors, replacing equivalent sectoral requirements. The Commission proposal would also introduce a single STS category for all investors, thus creating a harmonised securitisation product in the EU. This approach will provide insurers with a broader range of investment opportunities and bridges banks and capital markets. It would help them to select appropriate securitised assets and ultimately to take an active role in this additional funding channel for the wider economy.

The approach of the Commission puts insurers at the centre of the securitisation market, along with banks and funds.

The Commission also expressed its intention to update Solvency II, to take account of the new securitisation framework and to introduce new calibrations with improved risk-sensitivity. Calibrations of senior tranches were already adapted in 2014 and the new revisions will cover all tranches. To ensure consistency with other investments, the basic methodology will be based on EIOPA capital charges applicable to the underlying exposures of securitisation products. The model risk related to securitisation will be inspired by the advice given by EBA in July 2015 on STS products. This simple and proportionate approach will provide insurers with more suitable calibrations, allowing them to effectively strengthen their role as long-term investors in the EU.