Solvency II delays no saving grace for PE

EU insurers are pulling back from private equity despite ongoing delays in Solvency II rulemaking.

Ongoing Solvency II delays have not prevented the EU insurance market from becoming a more difficult fundraising arena for private equity firms. 

The Solvency II directive requires insurers to hold varying levels of capital based on the riskiness of an asset. For private equity holdings, insurers are required to set aside €49 for every €100 invested under a default risk model. The private equity industry has long-feared this will price many insurers out of allocating capital to private equity.

Last week insurance watchdog the European Insurance and Occupational Pension Authority published an impact report on Solvency II, which credit ratings agency Fitch analyzed to conclude that the directive's implementation will go beyond October 2014 (the date current European Parliament and Commission terms end). 

Solvency II's effective date could extend past 2014. Michel Barnier, the European Commissioner responsible for overseeing implementation of Solvency II, proposed studying the directive's impact on EU insurers before moving forward with rulemaking, PE Manager previously reported

As part of Barnier's plan to address concerns the directive was being written in haste, he suggested delaying Solvency II's go live date by one year to 2015, according to a Reuters’ report. 

Private equity firms hoping an extended deadline would preserve EU insurer's current allocations to private equity may be disappointed. 

Italy's biggest insurer, Generali, is seeking to sell a portfolio of private equity fund stakes valued at almost €500 million. Generali did not respond to multiple requests for comment asking if Solvency II played a part in the decision to divest. However the sale points to a wider trend of major EU insurers disposing of non-core assets. 

In March French insurer AXA agreed to sell its private equity unit AXA Private Equity to senior management and a group of outside investors. 

Another French insurer, Groupama, sold Groupama Private Equity to fund of funds ACG Group in January as part of an effort to sell assets not central to its insurance business.

Bucking the trend is German insurance giant Allianz. Michael Lindauer, investment director for Allianz Capital Partners, recently told PEI's in-house Research & Analytics team that Solvency II will not have a major impact on its non-core business due to its strict capital ratios in place. Allianz currently invests 2 percent of its €13.2 billion portfolio in private equity.