Lobbying efforts to remedy the punitive treatment of securitisation under the October 2011 draft of the level 2 regulations for Solvency II has not had the desired effect. The EU regulator's consultation on the treatment of long-term assets, published on 19th December 2013, makes the treatment of Commercial Mortgage Backed Securities worse rather than better. The proposals divide securitisations into Type A {"good", although

the capital cost even for these is pretty dire) and Type B ("bad"). CMBS will be type B securitisation. As such an AAA note will have a capital charge 4 times higher than an unrated corporate loan.

The capital cost of participating in a securitisation for an insurer using the standard model is crippling, although it is anticipated that most large insurers will be seeking approval from their national regulators to use their own models.

More detailis are on page 11 of our general Solvency II and IORP briefing that can be downloaded below..