European real estate industry unites over call for review of Solvency II capital charges
The European real estate industry has banded together to persuade the European Insurance and Occupational Pensions Authority (EIOPA) to include real estate in its upcoming review of the capital requirements for insurance companies, which are a key part of the proposed Solvency II Directive.
In a letter to EIOPA in September, Jonathan Faull, director general of the European Commission’s Internal Market and Services, requested that the capital requirements for insurance companies investing in different asset classes be reviewed to ensure they do not impede much needed investment and long-term financing of the real economy in Europe.
INREV and 12 other national and pan-European bodies, which together represent a wide section of the real estate industry in Europe, are adamant that real estate should be included in the review.
“Real estate is a major contributor to the European economy. Our industry accounted for 2.5 per cent of total GDP in 2011 and it employs four million people. It would be negligent for EIOPA to ignore this important asset class,” says Jeff Rupp (pictured), director public affairs, INREV.
The industry sees the review as an important opportunity for EIOPA to correct earlier unrealistic calculations of the capital requirements for real estate investment. According to INREV and its partner organisations these calculations were based on grossly inadequate data, leading regulators to adopt too narrow a view of the risk profile of real estate. Furthermore, real estate shares similar characteristics to infrastructure as an asset class, which Faull highlighted as needing to be re-examined.
Despite the fact that the letter from Faull was issued in September, INREV and the supporting organisations only recently discovered that EIOPA planned not to include real estate in the review. According to INREV, this underlines the lack of transparency that has been at the heart of EIOPA’s approach to establishing the capital requirements since the outset.
“Let’s hope EIOPA doesn’t miss this vital opportunity to do the appropriate thing and include real estate in its review. The stakes are too high to miscalculate the capital requirements, for a second time,” says Rupp.