Italian regulator rules that unrealised investment losses on bonds no longer need to be taken into solvency calculations

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Aviva has received a boost against contagion from losses on Italian sovereign bonds, according to analyst firm Investec.

The Italian regulator has decided that insurers no longer need to take unrealised losses on Italian sovereign bonds.

It means when making its solvency calculations, Aviva will only have to take losses on Italian sovereign bonds in the unlikely event of default, rather than losses on the values on which the bonds are traded at.

Life insurers generally hold their bonds to maturity, receiving the interest and then full redemption.

Investec said: “The Italian regulator has decided that unrealised losses on investments no longer need to be reflected in the IGD calculation.

“This is likely to be significant because at FY 2011 Aviva had £9.7bn of Italian sovereign bonds backing policyholder business where the policyholder bears all the investment risk. Thus while this does not affect shareholders, it did impact the local solvency situation.

“It is our belief that the French regulator is being more lenient, in that, while unrealised losses on government bonds were (and are) allowed to be excluded from the IGD calculation, gains were also excluded, but the latter is being relaxed.”