Jean-Philippe Médecin : “Solvency II did not lead to a significant decline in our equity exposures”

What was the impact of Solvency II on your activity / team? Did you need to recruit? Mobilize resources?

Regarding my department, there were no staffing changes due to Solvency II. However, it was necessary to review various priorities and to face additional regulation work, in terms of formalization and associated governance.

Do you use an internal model or a standard model?

We use in standard model.

What is the impact of Solvency II for your asset allocation? What about the proportion bonds in your portfolio?

Solvency II did not lead to a significant decline in our equity exposures or even a reduction in private equity investments (which are still tiny). On the other hand, we are increasingly integrating hedges to limit the effects of market drawdowns, which are very damaging not only for the Solvency II coverage ratio but also for its variability. Excluding units of account, bond allocation represents about 80 %, with half of sovereign bonds.

Excluding units of account, bond allocation represents about 80 %, with half of sovereign bonds.

Jean-Philippe Médecin, funding and asset-liability management director within the CNP Assurances investment department

Do you use hedging strategies for your portfolios via derivatives? Or do you invest directly in covered funds where the manager himself provides the hedge?

We have implemented hedging strategies to manage our exposure to interest rate, equity and currency risks. Specifically, we use caps and cap-spread options to hedge the risk of rising interest rates, put-spreads and put-spreads to hedge a stock market crash.

Debt funds, infrastructure debt or real estate are rather adequately addressed by Solvency II. Have you increased your outstanding assets for these asset classes?

These asset classes are indeed among those for which we have increased our exposure and for which we want to continue our investments. In absolute terms, they offer an interesting return, which also remains stable regarding risk (economic and in terms of capital need). Due to both the nature of our liabilities and our exposure volume, we can assume the illiquidity of these assets and in return receive the illiquidity premium.

Debt funds, infrastructure debt or real estate are indeed among asset classes for which we have increased our exposure and for which we want to continue our investments.

Jean-Philippe Médecin, funding and asset-liability management director within the CNP Assurances investment department

What should be done about Solvency II?

Currently, there are discussions regarding the developments of Solvency II framework. Among desirable developments include, firstly, we could mention the highly penalizing treatment of equity in terms of capital, which does not really reflect the long-term investor behavior of an insurer.