On 7 November, the ESAs published a joint consultation paper on Mechanistic references to credit ratings in the ESAs' guidelines and recommendations.
Insurance Europe believes that the Solvency II delegated acts should avoid forcing the insurance industry to develop complex expertise that is irrelevant and is a very limited addition to the insurance value proposition.
Solvency II eliminates asset allocation restrictions, while ensuring that insurers have sufficient capital and appropriate risk management to protect themselves from the risks to which they are exposed. Insurance Europe supports the need to reduce the over-reliance of financial markets on CRA ratings. However, legislation in this area should take into account the nature, scale and complexity of insurers’ business and investments. In our view, this is achieved by the Solvency II framework, Insurance Europe suggests.
Insurers’ investment decisions are therefore primarily driven by the profile of their liabilities (in terms of duration and liquidity). The risk-return profile of assets is another important factor insurers take into account when they invest. Insurers will either perform their investments internally, within the investment department/function of a company, or externally, via a mandate that is given to an external asset manager.
Insurance companies have limited interest and ability in developing exhaustive credit risk assessment models, but they also do not have the special expertise, access to a wealth of internal information and ability to make use of economies of scale and scope that CRAs have, and which make it possible for them to issue credit ratings.
Full document
Original consultation, 7.11.13
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