Standard formula ‘an inadequate risk measure’ for high-risk bonds
Eiopa urged to adjust bond SCR as study by Edhec Business School suggests Solvency II could discourage insurers from long-term bond investment
European policy-makers have been urged to adjust Solvency II's treatment of bonds, after a study found that the current calibration of the standard formula does not adequately reflect the risks associated with very high-risk bond types.
The research, by Edhec Business School, also found that the standard formula underestimates losses on high-risk bonds during periods of crisis and does not reflect the differences in geographical risk of bonds.
The European Insurance and Occupational Pensions
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