RiskTech Forum

MSCI: Real Estate Solvency II 2017 Update Report

Posted: 20 March 2017  |  Source: MSCI


The primary purpose of the 2011 IPD Solvency ll Review was to assess the information base used by the European Insurance and Occupational Pension Authority (EIOPA) in determining an appropriate solvency capital requirement for real estate portfolios held by insurance companies.

This update report adds six years of European investment market data to that available for the original study, bringing the capital risk analysis up to December 2015.

A three‐step approach was adopted. This involved:

1. Constructing full 15‐year quarterly valuation‐based indexes (VBI) for each of the 17 European markets fully covered by MSCI.

2. Estimating any additional trading volatility using transaction‐linked indicator (TLI) methods for key national markets and all relevant pan‐European composites.

3. Utilizing these new series to establish better grounded “value at risk" estimates, using EIOPA‐defined methodologies to identify worst case 12‐month negative return sequences.

This comprehensive scan for the most extreme current evidence of European tail values at risk indicates that any downside disruptions since 2009 have not been of a scale to merit revising the core 2011 conclusions. The appropriate shock factors to use for determining real estate solvency capital requirements need not, therefore, be pushed in excess of the 15% mark for all Europe, or 12% for European composites which exclude the U.K.

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