Responding to a European Commission consultation on the functioning of the EU securitization framework which closed on 4 December, Insurance Europe said it supports regulatory changes to improve the market for securitizations in line with the Commission's objectives.

However, the European federation of insurers also outlined the challenges that (re)insurance undertakings face when investing in securitizations.
 

• The European market for securitizations is currently neither sufficiently large nor liquid enough for many insurers to invest significantly in it.
• Capital requirements remains a significant barrier for some insurers because the existing requirements for securitizations under the Solvency II standard formula are too high in relation to the actual risks.
• The extensive due diligence requirements for institutional investors in securitizations, as a whole, lead to disproportionately high costs. They make securitizations less attractive for investors and put them at a disadvantage compared to other asset classes.

While correcting the Solvency II capital charges and reducing the operational requirements will not necessarily lead to a direct increase in allocations to securitizations for all insurers, it is a necessary step to unlock the potential of the EU securitization market.