Volume 2016 : 1
Introduction
The ECB's involvement in securitisation
Commendation, Caution and Concern – The Proposal for Common Rules on Securitization and a framework for Simple and Transparent Securitization
Commendation, caution and concern – Belgian law and policy making affecting the Belgian ABS market
Who Needs Securitisation and Covered Bonds?
Report of panel discussion: How to set up an active market in Belgium?
The Belgian Covered Bond market: an overview
Comment Solvabilité II renforce la résilience du secteur de l'assurance
How Solvency II brings about systemic risk?
Een korte bespreking van de nieuwe wet “Solvency II”
Het denkkader van de monetaire politiek
Is Opacity also a Risk Factor in the Euro Area?
Quelle est la qualité des ratings souverains non sollicités?
Analyse des prospectus d'émission de “green bonds”
The evolving trade finance landscape requires educational excellence
Introduction
The ECB's involvement in securitisation
Commendation, Caution and Concern – The Proposal for Common Rules on Securitization and a framework for Simple and Transparent Securitization
Commendation, caution and concern – Belgian law and policy making affecting the Belgian ABS market
Who Needs Securitisation and Covered Bonds?
Report of panel discussion: How to set up an active market in Belgium?
The Belgian Covered Bond market: an overview
Comment Solvabilité II renforce la résilience du secteur de l'assurance
How Solvency II brings about systemic risk?
Een korte bespreking van de nieuwe wet “Solvency II”
Het denkkader van de monetaire politiek
Is Opacity also a Risk Factor in the Euro Area?
Quelle est la qualité des ratings souverains non sollicités?
Analyse des prospectus d'émission de “green bonds”
The evolving trade finance landscape requires educational excellence
Année
2016
Volume
2016
Numéro
1
Page
54
Langue
Anglais
Juridiction
Référence
S. FOCQUET en L. LALA, “How Solvency II brings about systemic risk?”, BFW 2016, nr. 1, 54-56
Résumé
The nature of insurers business inherently makes them long term investors in bonds in order to match their long-term liabilities. Therefore, if the bonds are held until maturity and do not default, the changes in the value of these bonds have no consequence for their investor.
The volatility coming from changes in the market value of those assets, which is usually taken into account in Solvency II, is thus not a good risk measure for insurers. Consequently, the Solvency II capital ratio and balance sheet are too volatile (artificial volatility) and do not represent appropriately the risk. The two main exclusive measures created to fix this issue, the matching adjustment and a volatility adjustment, are not effective enough, so that the artificial volatility in the Solvency II measures still persists. Besides, there is also an incentive for less product diversity. Another unintended consequence is an increase in systemic risk due to insurers investing in similar assets or potentially being forced to sell certain bonds, whose market value have decreased too much, leading to too low Solvency II ratios. In that case, the sale of the bonds would materialize a loss that would otherwise not have materialised as long as no default would have occurred. This issue is further exacerbated by the pillar III requirements, which will require insurers to disclose their Solvency II ratio to the markets as from 2017.
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