S&P Analyzes EU’s Proposed Solvency II Regulations on ‘Hybrid Capital’

March 5, 2010

Standard & Poor’s Ratings Services has published updated assumptions for assessing European insurance hybrid capital instruments (see “Assumptions: Implications Of Solvency II Proposals For Our European Insurance Hybrid Criteria”).

“We published the new criteria to clarify several areas, said the bulletin, mainly:
— Our ratings treatment of hybrid securities that do not meet supervisory capital standards under Solvency II and
— The impact of differential supervisory grandfathering practices between bank and insurance supervisors.

“Under the Basel III and Solvency II frameworks, we expect bank and European insurer supervisory capital requirements to embody similar principles with respect to hybrid capital securities,” explained credit analyst Rob Jones.

“However, the period of supervisory grandfathering will likely diverge. We expect European insurance supervisors to continue treating hybrids issued before the Solvency II implementation date as supervisory capital, even if they disqualify similar securities issued after that date.”

The bulletin also noted that “Solvency II is currently expected to come into force on Oct. 31, 2012. There are considerable uncertainties regarding Solvency II and we have not concluded how we would treat “grandfathered” issues once Solvency II is implemented. Accordingly, instruments issued in the interim may continue to achieve our ‘Intermediate’ or ‘High’ equity content classification, but could be recharacterized in the future.”

The report is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Alternatively, call one of the following Standard & Poor’s numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011.

Source: Standard & Poor’s

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