Insurers await Solvency II clarity for asset allocation

The impact of Solvency II on asset allocation decisions is hard to predict, particularly since the rules are not yet finalised, but two recent papers suggest that if a company wants to limit its capital requirements then asset allocation should be a key focus. However, outside factors may have an equal or perhaps even greater influence. Clive Davidson reports

One of the most notable aspects of Solvency II is that it introduces capital charges on assets for the first time. Whereas previously insurers could develop their investment strategies without fear of the impact on their solvency ratio, now the riskiness of the assets in their portfolios will carry a capital charge. The diversification credit under Solvency II and the removal of the admissibility rules for assets will allow insurers to invest in a broader range of instruments.

The potential