Bishopsfield sounds Solvency II warning

New research warns flaws in the EU’s Solvency II insurance directive could hinder any future recovery in the real estate sector.

Bishopsfield Capital Partners' report ‘Solvency II and Real Estate: Our Challenge to the Current Proposals’ claims that the attractiveness of real estate as an investment category for insurers could dramatically decline under the proposed directive.

Solvency II is scheduled to come into effect in January 2014 and will harmonise insurance regulation across all 27 EU member states. The proposals in their current form will require insurers to categorise real estate as an interest-insensitive asset - leading to much higher capital charges than for other long-term investments such as bonds.

The European structured finance firm claims that this uniform approach is overly punitive and out of line with current market thinking. The report sees the company carry out its own empirical analysis to demonstrate the fluid link between real estate values and interest rates in support for its call for changes to the current proposals.

‘Our research provides new evidence to support market concerns about Solvency II because it successfully demonstrates the existence of an inverse relationship between residential real estate values and interest rates in a number of key European markets,’ said Bishopsfield partner Arjan van Bussel.

‘We would urge insurers to use the alternative option offered by Solvency II to build their own proprietary models to assess interest rate risk based on historical data.’

The report is available on the Bishopsfield website (see link below)

Solvency II and how the real estate world should re-act to it, will be one of the topics at PropertyEU's European Real Estate Policy & Investment Forum on 29 May 2013. The event, which includes a Benelux Investment Briefing, is being held at Realty Brussels.