The European Insurance and Occupational Pensions Authority (Eiopa) has been investigating the possibility of taking a more granular approach to infrastructure debt in the standard formula. At the request of the European Commission, the authority will publish in July a proposal to reduce the capital charges that apply to a subset of infrastructure debt that is deemed "safe".
Gabriel Bernardino, chairman of Eiopa, anticipated the broad features of infrastructure investments that will be favoured. "We are targeting infrastructure projects that generate stable cash flows, are robust under a number of stresses, possess a strong contractual framework, low financial risk and mitigated construction risk," he said in a speech at a conference in London on 2 June.
While recognising that finding the proper calibration of the risk charges for this asset class a "challenging task", he dismissed the idea that Eiopa will give investments in infrastructure a preferential treatment, even in a period of low interest rates. "Infrastructure investments may be part of more diversified investment portfolios and that could be something positive, but we should have it treated in a sound and controlled way."
As the rules currently stand, infrastructure attracts the same capital charge as corporate bonds or equities, depending on whether insurers invest through debt or participate directly in a project. The charges on corporate bonds vary according to rating and duration, whereas the charge on equity investment can be as high as 59%.
This is the third time Eiopa has weighed up the calibration of infrastructure investments. In 2013, it argued that there was not enough data to justify a revision of the standard formula.
People:Gabriel Bernardino
