Insurance: Just Part of the Financial Sector? [26]

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Bullet points include: Solvency II could reduce demand for banks’ long-term instruments when banks most need to issue them. Concern shared by regulators and market participants. Solvency II standard formula SCR credit spread risk requirement depends (roughly proportionately) on rating and on duration. EEA sovereign bonds (and equivalents) are zero rated irrespective of credit rating. Interaction with cost of capital. Although: ‘Long-term’  for banks may differ from ‘long-term’ for insurers. Insurance demand is liability driven (e.g. unit-linked, participating business). Insurers are not the main buyers of bank senior unsecured and covered bonds

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