EUROPE - Solvency II could see insurers divert real estate capital to debt investments and higher risk/return strategies, but fund managers are still unable to formulate business plans accordingly, panellists concluded during an IP Real Estate webcast.

Will Anders, finance director for property at Henderson Global Investors, said real estate fund managers would be looking at how they could best serve the insurance company community in a post-Solvency II environment.

Speaking during IP Real Estate's webcast on Solvency II, Anders cited as an example the well-documented move into the real estate debt markets by insurance companies, which under current proposals could become more attractive than direct equity investing.

"There is enough evidence out there to suggest insurance companies are looking at restructuring the form of their investments," he said.

John Forbes, partner for real estate funds at PwC, agreed, saying: "We need the areas of uncertainty to be resolved quickly so it becomes clearer exactly what vehicles will be attractive to insurers."

Forbes said he was particularly concerned about the level of uncertainty for real estate fund managers, which has continued despite the publication of the latest quantitative impact study QIS 5 in March.

QIS 5, he added, was unhelpful for the real estate sector, with only one paragraph in 150 pages covering real estate.

Matthew Ryall, global head of indirect investment and capital markets at Allianz Real Estate, said recent signs that insurers were moving into the real estate debt space were not necessarily a direct result of Solvency II requirements.

"There has been a lot of coverage about how insurance companies will stop investing in equity and will just do debt as a result of Solvency II," he said.

"From a risk-adjusted return basis, real estate debt makes sense, and so I am not surprised that a number of parties are looking at real estate debt.

"For a variety of reasons, not just Solvency II, you will see more players move into the markets and provide real estate debt."

The panel also discussed how current Solvency II proposals could make higher-risk, higher-returning real estate funds more attractive.

"The way things are written at the moment, it would suggest insurance company investors will look to make real estate investments that are capital efficient in their risk and return profiles," Anders said.

"That could well suggest that they might increase their more opportunistic investments [and] decrease those at the lower end of the [risk] spectrum."

But Anders doubted that this would be a desirable outcome of the regulators because it would "suggest an investment approach that is not entirely logical - you would have a case of the tail wagging the dog".

Forbes agreed it was still uncertain whether the requirements would encourage insurers to go into more highly geared vehicles, but he said the question still remained whether direct or indirect investment would be seen as the most capital efficient form of exposure.

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