MSCI calls for Solvency II’s capital requirements be lowered

Insurers are calling for capital requirements for European real estate investment under Solvency II be softened down, after research by MSCI suggested that current levels were too high.

In an update to its study published in 2011, MSCI called for the capital charge for European real estate investments to be reduced from 25% to 15%, arguing that the earlier figure was calculated using a limited data set.

Lowering the capital charge will be helpful to the real estate industry, as insurers will have to hold less capital to protect themselves from potential losses.  

“When the Solvency II directive was being developed, the regulators didn’t have any data to come up with a calculation of what the volatility of real estate across Europe is, so they used the data set they had, which was a UK-specific data series from IPD and MSCI,” said Jeff Rupp, director of public affairs at INREV, which sponsored the study.


However, the data reflected the volatility of only the UK market, which is more volatile than other countries.

Rupp said this year they decided to re-commission the research to MSCI to come up with a country-weighted average across Europe. When they did, they came up with a figure of 15%.

Hauke Brede, chief risk officer at Allianz Real Estate, came out in support of lowering the risk capital, saying it would lead insurers to increase their portfolio’s allocation towards real estate, as it would make the asset class less expensive.

“Real estate often represents between 5% to 10% in an investment portfolio and this could be the reason why this topic is sometimes overlooked,” he said. “At the same time, real estate can be a solid long-term investment and it offers great diversification.”

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