Norwegian authorities may set lower limit for estimated LGD around mortgage loans

Written by Adam Cadle

31/01/2020

Norwegian authorities may set a lower limit for estimated loss given default (LGD) to ensure that insurers are subject to approximately the same capital requirements as banks for their exposure to mortgage loans.

In its latest Risk Outlook – December 2019 report, The Financial Supervisory Authority of Norway (Finanstilsynet) said some assets held by insurers are subject to relatively low capital requirements under Solvency II, including residential mortgages with a low loan-to-value ratio.

On commission from the Ministry of Finance, Finanstilsynet forwarded in March 2019 a proposal for changes in capital requirements for residential mortgages for insurers.

Finanstilsynet’s proposal entails that a 30% floor is set for the calculation of LGD to ensure that the potential for arbitrage-motivated transfers of loans between banks and insurers is reduced.

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