Changes in the capital requirements for insurers’ residential real estate exposures

An EEA adaptation to Regulation (EU) 2015/35 allows national authorities to ensure that the capital charge for residential mortgage loan exposures for insurers is better aligned with the capital requirement for such exposures held by credit institutions in accordance with CRR/CRD IV. The adopted amendment introduces a floor for loss given default (LGD) at 30 per cent of the value of the exposure, so that the insurers’ capital requirement (which is 15 per cent of LGD) will be at least 4.5 per cent of the value of the exposure. This will ensure a closer alignment of the capital requirements for insurers to those of banks. Similar regulation of similar risk contributes to solvency and fair competition in the financial system.

The Ministry has held a public consultation on a draft amendment. The consultation closed on 15 August 2019. The Ministry has adopted the draft amendment, and it will apply from 31 December 2019.