18 December 2014
The European Parliament is poised to ask the Commission to adopt an additional Solvency II delegated act setting lower capital charges for insurers investing in infrastructure, Insurance Asset Risk understands.
Shadow rapporteurs agreed on Wednesday the wording of a letter that justifies their decision not to object to the current delegated act, but flags areas of concern.
In the missive, the Parliament urges the Commission to mandate the European Insurance and Occupational Pensions Authority (Eiopa) to examine the treatment of infrastructure investments as well as securitisations under the Solvency II standard formula.
MEPs say that the results of that work should inform a delegated act to be adopted by the Commission before the planned review of the regulation in 2018, according to sources familiar with the matter.
There is a widespread expectation that the directive could be adopted earlier, to help Commission chief Jean-Claude Juncker's €315bn ($392bn) investment plan, but MEPs refrained from imposing a stricter timeline.
"There is a determination to favour investment in infrastructure, but it is also acknowledged that the risks these investments pose must to be framed with the help of Eiopa," an EP source said.
As the rules 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 in most cases is 49%.
There have been numerous calls from the industry over the past couple of years to review the charges on infrastructure, but Eiopa opposed them on the grounds that there was insufficient data to justify treating it as a separate asset class.
In a speech in December, Eiopa chairman Gabriel Bernardino also pointed out that considering charges in isolation is inappropriate, given that overall these investments could increase the diversification benefit.
"If we base our analysis on the marginal return on regulatory capital, investments in high quality securitisations, infrastructure debt and private equity are, at least on a relative basis, quite attractive," he said.
The Commission, though, has kept the door open on this issue. Speaking about infrastructure in early December, Steve Ryan, deputy head of unit, insurance and pensions, recognised that there was growing pressure to anticipate a review of the calibrations.
"I can see this coming sooner rather than later," he added, during a panel debate at the Solvency II conference of the federation of French insurers.
The move by Parliament follows its decision to vote through the delegated acts, paving the way for Solvency II implementation in 2016. The Greens had submitted a motion to block the adoption, but it was rejected in plenary on 17 December.
An Eiopa spokeswoman said the authority advocates the need to maintain a sound and prudent approach to the calibration of risks in Solvency II, backed with sufficient evidence.
Asked about the request from Parliament, she added: "If the relevant decision by the EU political institutions is taken, Eiopa stands ready to do the further technical work both on securitisations and infrastructure in order to refine the calibrations going forward."