Insurers warn on capital adequacy rules

TOUGH new capital requirements to be imposed on European insurance companies could restrict them from investing in bank debt, a think tank said yesterday.

The Institute of International Finance said new Solvency II rules being brought into force in the next two years could prevent them from buying large tranches of long-dated bank bonds despite a growing need for banks to raise fresh capital.

“The willingness and ability of the insurance sector to provide a ready market for new capital and funding may be quite limited,” said Axel Lehmann, chief risk officer of insurer Zurich Financial Services and a member of the IIF insurance working group.

Insurers hold about 60 per cent of all bank debt.

The IIF also objected to Solvency II’s proposed charges, which impose higher costs on corporate debt than sovereign debt and could force insurers to hold risky government debt rather than company bonds.

“It’s certainly the case today that certain corporate debt is in better shape than certain sovereign debt,” said Walter Kielholz, IIF board member and chairman of Swiss Re.