Solvency II drives changing appetite for fixed income

The risk-based capital charge that forms part of Solvency II is set to radically alter insurers’ appetite for credit, particularly longer-dated paper. Has this started to feed through into changed patterns of behaviour on the fixed-income markets? Laurence Neville reports

The working assumption in the insurance industry during the many years that Solvency II has been debated has broadly been that its implementation will have major implications for asset allocation. In particular, the inclusion of insurers' investment policy, in terms of asset allocation and asset duration, in capital requirement calculations under Solvency II is broadly anticipated to be negative for the credit market.

"Solvency II provisions on corporate bonds, as stipulated in the fifth