Solvency II: capital charge for PE could be lower than expected

The lower risk weighting will mean insurers will have to make provisions similar to that associated with public equities when investing in private equity funds.

"The Solvency II risk weightings for different asset classes are still under discussion and the European Commission is expected to present a formal proposal in the coming weeks," EVCA public affairs director Michael Collins told unquote". "We understand they will propose a 39% risk weighting for private equity and venture capital. If confirmed, this would be a welcome development and better reflect the true risk that insurers face when investing in the asset class than the 49% proposed originally".

According to French publication Capital Finance, the head of French insurers association FFSA stated that he was also expecting a lower 39% capital charge in the formal proposal. FFSA head Bernard Spitz reportedly made the comment while speaking at an institutional investors conference organised by private equity association Afic in Paris yesterday.

The Solvency II directive, which is designed to regulate Europe's insurance industry, assigns different risk weightings to various asset classes. The capital requirement originally assigned to private equity (49%, in line with other alternatives such as hedge funds) was seen by many in the industry as a major deterrent to insurers committing to private equity funds.

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