PRA view on sovereign risk hedging too simplistic, say experts
UK regulator failing to consider complexities of risk free rate
The UK regulator is taking an overly simplistic view in pushing internal model firms to hedge gilt-swap spread risk under Solvency II, according to experts.
On March 31, the UK Prudential Regulation Authority (PRA) was the first national regulator in Europe to say internal model firms will have to hold capital against sovereign bonds – a decision the European Insurance and Occupational Pensions Authority (Eiopa) matched in an opinion published on April 14.
But market experts have questioned the
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