Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry. It aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current Solvency requirements. It aims to implement solvency requirements that better reflect the risks that companies face and deliver a supervisory system that is consistent across all member states.
During September and October 2010, Preqin surveyed more than 20 Europe-based insurance companies to assess the impact of the Solvency II Directive on the indirect real estate investments of these firms. The results show that the Directive will have a significant impact upon the real estate investment strategy of these institutions, and the size and composition of their real estate portfolios.
Insurance companies that invest in private real estate funds were asked how Solvency II would affect these investments. 74% felt that the Solvency II legislation would impact their investments in these funds. Just over a quarter felt their fund commitments would be unaffected by the Directive.
Private real estate fund managers should expect to receive fewer commitments from EU-based insurance companies in years to come. 26% of respondents felt Solvency II would impact their real estate investments as they were expecting to make fewer commitments to private real estate funds as a result of the legislation. A further 16% said that the Solvency II legislation was a contributing factor in their decision to no longer invest in private real estate funds. 5% of investors expected to target more core funds, while 5% said that they would need to target opportunistic investments.
Please click here for the full survey results. Please see our Real Estate Online service for more information on private equity real estate investors.