EUROPE - Close to three-quarters of European insurance companies will revise their real estate commitments as a result of incoming Solvency II regulations, according to data providers Preqin.

A survey of Europe-based insurance companies showed the EU legislation, which will require insurance companies to increase their capital reserves when investing in risk assets, would have a significant impact on both direct and indirect real estate investment.

The vast majority (74%) of respondents said the directive would impact on their investments in private real estate funds, while 26% expected to make fewer commitments to private real estate funds.

Meanwhile, a significant minority (16%) said Solvency II was a contributory factor in their decision to stop investing in private real estate funds altogether.

The findings have grave implications for the institutional real estate investment industry, considering there are more than 90 insurance companies with headquarters in Europe, collectively managing assets in excess of €315bn, that invest in real estate

According to Preqin, 44% of these have more than €1bn allocated to real estate investments.

Andrew Moylan, real estate data manager at Preqin, said: "These results show the Solvency II legislation will have a dramatic impact on the real estate investments of insurance companies based in Europe.

"Those raising private real estate funds are likely to receive far fewer commitments from this group of investors, with many reducing or ending their allocations to such funds."

Moylan said the precise impact of Solvency II on real estate investments of insurance companies was still unclear, but he said institutions were expecting to adopt very different strategies in response to the directive.

He added: "The responses to Preqin's survey, however, do indicate it will significantly alter the investment approach of these institutions, and given the size of the real estate portfolios of many of these firms, it will have a major impact on many other firms within the industry."

INREV, the association for the non-listed real estate funds industry in Europe, revealed last month it would begin lobbying Brussels over Solvency II.

The incoming regulations only affect insurance companies, but the EU has proposed extending the rules to cover pension funds, a move that would have an even greater impact on the institutional real estate investment space.
 

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