Solvency II And Its Impacts On Alternative Investment Fund Managers (AIFMs)

On 1 January 2016, a new EU-wide insurance supervision system became effective.

Affecting insurance companies first and foremost, Solvency II introduces new solvency capital requirements (SCR) and reporting requirements (QRT) which are of particular importance for AIFMs.

Under the new directive, different asset classes require different capital charges which means that, notwithstanding the fact that insurers continue to look for yields that enable them to meet their guaranteed interests, asset allocation might be driven by the objective of reducing the required capital charge as well.

In reaction to Solvency II, we have seen that the life insurance industry especially is looking more and more for investments with a high duration such as long-term government bonds (other than those from Germany). Alternative investment classes like real estate and infrastructure have become more attractive as well. In this new context, debt funds still play an important role—and since considerably reducing the capital charge for infrastructure investments is currently being debated, it's probable that this asset class could become even more attractive in the future.

To calculate their SCR, insurance companies have to take a "look-through approach" to collective investment vehicles in order to assess their target investments. If this approach isn't possible (for example if the information isn't available), the highest capital charge will apply. Under specific circumstances, alternatives to the look-through approach are available, e.g. using the investment strategy of a fund...