Question ID: 2014
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Topic: Other
Article: 176 & 214(5)
Status: Final
Date of submission: 27 Aug 2019
Question
The general notation of Article 214 may suggest that only fixed income instruments can serve as collateral.
Can you please clarify whether real estate can also serve as collateral as defined by Artice 214, given that all relevant conditions (including the high liquidity condition) are met?
EIOPA answer
Property held as mortgage could in general be taken into account if it meets the requirements set out in Article 214 of the Commission Delegated Regulation (EU) 2015/35 on collateral arrangements. In particular, if it meets the requirements of Paragraph 1 of this Article. However, it is worthwhile to mention that for real estate as collateral the requirements of Art. 214 Paragraph 1a, 1b and 1c might not be fulfilled in many circumstances. This is because it might be difficult to liquidate real estate in a timely manner under certain, particular stressed market conditions. Moreover, real estate prices might not be sufficiently stable in value. The latter particular holds for commercial real estate, which is quite a cyclical market with potentially huge price drops in economic downturns. Finally, for commercial real estate in particular, there often is material positive correlation between the credit quality of the counterparty and the value of the collateral.