There is a growing need for insurance companies to become the ‘Seventh Cavalry’ to plug the debt gap in Europe, according to Paul Rivlin, co-founder of Palatium Investment Management in London.

Speaking at a panel entitled ‘Whom does Solvency II rescue? The interest of investors, the insurances and the European Commission’, Rivlin highlighted the importance of insurance companies plugging the growing debt gap in Europe. ‘To insurance companies, I would say: ‘Please gallop faster’, the market needs you.’

Solvency II is a directive that codifies and harmonises EU insurance regulation in terms of the amount of capital that insurance companies must hold to reduce the risk of insolvency. Once approved by the European Parliament, Solvency II is expected to come into effect on 1 January 2013. It will encourage insurance firms to lend because it’s good for secure funding, according to Laurent Lavergne, head of fund management at AXA Real Estate in Paris. ‘The market is very attractive in terms of pricing. I think interest will increase until spreads tighten.’

While a number of European insurers have recently moved into the lending arena, Europe still has a long way to go to catch up with the US, where insurance companies account for around 40% of the mortgage lending market, said Lavergne. Rivlin agreed: ‘Real estate lending is not a traditional activity for European insurance companies. The pace at which they are moving into the lending market is incredibly slow,’ he said.