Effects of Solvency II on Portfolio Efficiency, The Case of Real Estate and Infrastructure Investments
Michael Heinrich and
Thomas Schreck ()
LARES from Latin American Real Estate Society (LARES)
We examine the potential effects of Solvency II on general portfolio efficiency, and specifically on the allocation of alternative assets by European insurers. The paper starts with a brief intro- duction to the Solvency II Directive, focusing on the rules for calculating the Solvency capital requirements (SCR), according to the standard formula. The following empirical analysis en- tails several portfolio optimizations considering six relevant asset classes for the time period from 1993-2013. We derive optimal portfolios with respect to portfolio risk and capital require- ments, and finally combine both optimization problems. Our results suggest that, although the capital charges for real estate and infrastructure assets are not adequately calibrated, a signifi- cant shift of portfolio weights is not expected for the majority of European insurers. However, after Solvency II comes into effect, undercapitalized insurers may often not be capable of hold- ing risk-optimal allocations of alternative assets.
Keywords: Financial Crisis; Infrastructure; Life Insurance; real estate; Risk Based Regulation (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:lre:wpaper:lares_2017_paper_8
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