On 18 July, the European Commission published further draft documentation regarding changes to the delegated acts1, inviting stakeholders to provide feedback. Part of the draft proposals gave more details on potential changes to the treatment of securitisations, both STS and non-STS, within the spread risk sub-module.
The draft text from the European Commission proposes the Spread Risk charge for securitisations meeting the senior STS label should be aligned with that of covered bonds, and non-senior STS securitisations should be adjusted by the same extent. For non-STS securitisations, the draft text proposes to have different risk factors for senior and non-senior tranches, a shift from the current regime where it does not explicitly account for seniority. The proposals for both the senior and non-senior non-STS securitisations risk factors are lower than under the current regime.
We view these proposals as a positive development for the securitisation market and for insurers wanting to utilise this asset class in their overall strategic asset allocation.
