Standard Life Investments

Inside Global Insurance Investment

Internal credit ratings for Solvency II receive independent assurance

Standard Life Investments attained independent confirmation that its internal credit rating processes for a range of asset classes meet the standards demanded by Solvency II.

October 2016

One of the major themes in today’s insurance investment environment is a rotation from public to private credit assets such as infrastructure debt and commercial mortgages. These private assets are usually not rated by a credit rating agency and, as such, may attract a punitive capital charge under Solvency II.

However, for insurance firms that use internal models, Solvency II also offers the option of using internal credit ratings to assess the capital requirements of unrated credit assets. To obtain regulatory acceptance for the use of internal ratings, insurance companies must provide their supervisor with evidence that the internal credit rating processes and the governance surrounding them are sufficiently robust to be fit for use in the regulatory capital assessment.

In assessing their asset risk and capital requirement, it is natural that the insurance company may look to leverage the internal credit rating processes that their asset manager uses in originating unrated assets and managing the portfolio. This requires the asset manager to make their internal ratings processes highly transparent to their insurance client.

To support our efforts to ensure maximum transparency for our insurance clients, Standard Life Investments appointed PwC to review our internal credit rating processes earlier this year. This work is now complete, providing independent assurance that our internal credit rating processes for a range of credit asset classes are fit for purpose for use by insurance companies under Solvency II.