2013-05-02-奥纬咨询-The_Effect_of_Solvency_Regulations_and_Accounting_Standards_on_Long-Term_Investing_42页_1mb

Analysis Summary: OECD Working Paper on Solvency Regulations and Accounting Standards

Executive Summary

This OECD working paper examines the effects of recent and planned changes to accounting standards (e.g., fair value principles) and solvency regulations (e.g., risk-based frameworks) on long-term investing by insurers and pension funds. The paper highlights that these regulatory shifts, including the adoption of fair value accounting and risk-based solvency rules like Solvency II, can lead to increased derisking (reduced equity allocations), potential procyclicality (e.g., forced asset sales during downturns), and a move toward defined contribution (DC) plans. However, it cautions that poorly designed regulations may undermine long-term investment horizons and stability, necessitating careful calibration to incorporate market-consistent valuations while supporting sustainable asset allocation strategies.

Key Findings

Major Developments

• Accounting standards are moving toward fair value, providing greater transparency but emphasizing short-term market fluctuations. Risk-based solvency regulations, such as Solvency II, use market-consistent valuations and capital charges tied to asset risk, impacting investment strategies. These changes vary by country, with regulations like the Danish traffic light system and Swiss Solvency Test (SST) shaping asset allocations.
• The convergence of international standards (e.g., IFRS and Solvency II) is driven by global regulatory efforts, but regional variations persist, affecting institutions differently.

Evidence on Investment Strategies

• Derisking is evident, with institutions reducing equity and illiquid assets to comply with stricter capital requirements for riskier investments. For instance, pension funds in the UK, Denmark, and the Netherlands saw significant drops in equity allocations post-regulatory reforms, compensated partly by shifts to fixed income and alternative assets like hedge funds.
• Procyclicality and asset fire sales can occur, as regulations incentivize reactive behaviors during market stress (e.g., during the 2008 crisis). Countries responded with counter-cyclical adjustments in regulatory frameworks.
• Shifts toward DC plans and reduced guarantees in insurance products are linked to regulations, as fair value accounting discourages risk-sharing, transferring liabilities to individuals.

Solvency II Impacts

• Solvency II, the EU's risk-based framework, significantly affects asset allocations by imposing higher capital charges on volatile assets like equities and emerging market investments. Insurers may favor long-term government bonds or swaps for capital efficiency, but this could amplify procyclicality.
• Rules may discourage long-term investments in infrastructure and illiquid assets due to high capital costs, but appropriate risk modeling and diversification could mitigate this.

Conclusion

Regulatory and accounting reforms enhance transparency but pose risks to long-term investment incentives. Institutions and regulators should balance market consistency with incentives for patient capital to maintain financial stability. Further research, especially on the long-term effects of risk-based DC plans, is recommended.

End of Summary