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June 01, 2018

EC adopted new rules, via a Delegated Regulation, to stimulate investments of insurance companies in simple, transparent, and standardized (STS) securitization. The rules will apply as of January 01, 2019 if the European Parliament and the Council raise no objection to it. The rules will provide for a more risk-sensitive approach in the calculation of the amount of capital that insurers need to set aside when they invest in STS securitizations.

These amendments will make Solvency II, which is the EU insurance legislation, compatible with the harmonized rules on STS securitization, which were adopted by co-legislators in 2017. This will contribute to the creation of an integrated Capital Markets Union. The amendments are also in line with the revised prudential treatment of banks' investments set out in the STS securitization framework. The new rules will:

  • Replace the current distinction between “type 1” and “type 2” securitization with the distinction between STS and non-STS securitization
  • Replace the sector-specific provisions on due diligence and risk retention with references to the harmonized STS framework
  • Introduce risk-sensitive capital requirements for senior and non-senior tranches of STS securitization
  • Provide for transitional rules concerning investments in securitization that were issued prior to application of the STS framework

 

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Effective Date: January 01, 2019 (subject to agreement of European Parliament and Council)

Keywords: Europe, Insurance, STS Securitization, Solvency II, Delegated Regulation, EC

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