Progressive insurers revise approach to sovereign risk

Some supervisors pressing firms to risk weight sovereign bonds

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Insurers say repeatedly that capital charges under Solvency II’s standard formula are too high. There is one asset class, though, which both the more conservative of firms and supervisors agree is treated too leniently: sovereign bonds.

Europe’s Solvency II legislation determines that sovereign bonds issued by European Union member states are exempt from capital charges relating to spread and concentration risk. This means that, providing they hedge against interest rate risk, insurers should tr