The European Parliament's vote to adopt the Omnibus II Directive for Solvency II leaves 'significant areas of uncertainty for real estate investment management', according to consultant John Forbes.

The European Parliament's vote to adopt the Omnibus II Directive for Solvency II leaves 'significant areas of uncertainty for real estate investment management', according to consultant John Forbes.

With full implementation planned for January 1,2016, Solvency II represents 'a major challenge for the real estate investment management industry', Forbes wrote in a note.

'With the extraordinarily short timeframe to implementation, most insurers have yet to start looking at what this means for their investment managers. When they do, some fund managers are going to struggle to meet the demands of insurance clients.'

Forbes pointed to ongoing uncertainty surrounding the regulation's capital requirements, given that an official, updated draft has yet to be published. In addition, the treatment of real estate lending remains confused while lobbying efforts to remedy the punitive treatment of securitisation has, in Forbes' view, made the treatment of Commercial Mortgage Backed Securities worse rather than better.

Finally, most large insurers have indicated that they will take up the option to seek approval from their own local regulator to use internally generated models to calculate their Solvency Capital Requirement rather than the Standard Model set out in the regulations. 'At this stage there is uncertainty as to the extent to which local regulators will allow internally generated models to differ significantly from the calibration under the Standard Model,' Forbes noted.

Solvency II is a fundamental reform of the capital adequacy regime for the European insurance industry. It aims to establish a revised set of EU-wide capital requirements and risk management standards to reduce systemic risk in the insurance industry.