5 February 2015

Eiopa reconsiders Solvency II infrastructure investments charge

The European Insurance and Occupational Pensions Authority (Eiopa) has announced that it has started a new consultation project that will look into the treatment of infrastructure investments by insurers as a part of the Solvency II framework.

Eiopa said that the focus on this area followed on from its previous work on the regulatory treatment of long-term investments and that it now wants to analyse infrastructure investments on a more granular level.

A spokesperson for Eiopa told Insurance Asset Risk that it will look into infrastructure investments in detail, analysing similarities and risks and assessing the degree of commonality that they have in order to decide if it can be seen as a new asset class.

Infrastructure investment and real assets have become more attractive to insurers in recent years, because they have been identified as providing a better return than some investments, such as bonds and equities (IAR, 2 February, Real assets increasingly attractive to institutional investors).

Eiopa will look at three specific areas. Firstly it will develop a definition of infrastructure investments that offer predictable long-term cash-flows and whose risks can be properly identified, managed and monitored by insurers. Secondly it will explore possible criteria for the new class of long-term high quality infrastructure assets covering issues such as standardisation and transparency. Finally it will analyse the prudentially sound treatment of the identified investments within Solvency II, focusing on their specific risk profile.

As a part of its analysis Eiopa said that it is now in the process of contacting insurers, public authorities, asset managers, academics and a wide range of construction firms. The latter will range from residential or commercial property builders to energy companies that build or operate power stations, dams or green energy projects. No details of exactly who Eiopa is contacting are available yet.

Eiopa has not announced a timeframe for the study, but a spokesperson told IAR that the initial stages will be completed by this summer, with a more exact timetable being announced later in the year. It is not clear if any changes to the capital charges on infrastructure will be made before Solvency II comes into force on 1 January 2016.

The resulting recommendations will then be sent to the European Commission for consideration and these could then be built into the overall Solvency II framework, depending on what the Commission deems necessary.

Channels: 
SAA/ALMRegulation
Companies: 
Eiopa