There seems to have been a suite of materials on Solvency II and predicted asset allocation impacts recently, from the great and good (Gideon on the Solvency II Wire has kept on top of these, and I took a look at the Oliver Wyman/IIF document last week - much of the materials pointed towards a drive towards short term EU government debt (capital-free, and no duration penalties) ahead of where an insurer may traditionally have invested for policyholder benefit, corporate (and specifically bank) debt.
There were some left-of-centre views that I spotted, one from a representative of Markit opining that, in the current climate, government debt was now being viewed as riskier than Western European corporate debt. Another covered the potential for Insurance Linked Securities demand to increase under Solvency II, thus necessitating more issuance to be EU-based (as opposed to traditional homes Bermuda or Cayman). The third came from Union Banque Privee, with research cited in the FT that, with appropriate asset selection (cheeky derivatives used as examples), asset arbitrage will allow insurers to obtain exposure and performance without necessarily holding onerous amounts of capital as prescribed under Solvency II.
The first then indicates that the weightings may need a genuine re-examination with the Eurozone debt issues as the backdrop, while the other two suggest there are investment options to counter the new requirements. Is the IIF research therefore much ado about nothing, or perhaps is the mighty banking lobby having one last "flex of the guns" before its emasculation over the next few years?