Why insurance regulators are split on sovereign risk

North-south divide as some say Eiopa approach is wrong

tug-of-war2

The treatment of sovereign risk is an anomaly in the Solvency II directive that few in the industry expect to last. But regulators remain divided over what to do about it.

Because sovereign bonds are considered risk-free in the standard formula, insurers can theoretically hold no capital against them and avoid admonition from their supervisors. But some regulators, such as Carlos Montalvo, executive director at the European Insurance and Occupational Pensions Authority (Eiopa), have recently ack