Pensions next target in risk capital rules

Work already underway on Solvency II has been closely monitored by the buyout industry, which fears insurance firms will be pushed to shed their private equity assets to meet new risk capital rules. As it stands, EU (re)insurance firms will need to set aside a hefty €49 for every €100 invested.

Stakeholders have further criticised the way Solvency II models private equity risk, arguing regulators have created a confused distinction between listed and unlisted private equity assets. Further objections relate to whether Solvency II sufficiently acknowledges the benefits of a diversified portfolio with long-term private equity holdings.

Banks, a third pillar of LP support after insurers and pension funds, will be subject to their own risk capital rules under Basel III, which from 2013 will be phased in over six years. Banks will also need to hold varying amounts of emergency capital for their private equity holdings, which could lead to reduced commitments to private equity in future.

EIOPA will collect responses until 2 January, 2012. The supervisor will subsequently provide technical advice to the European Commission which is expected to then craft new European legislation for pension schemes.