WIREDGOV

As a result of one of the first measures in the Capital Markets Union Action Plan, insurers will find it more attractive and cheaper to invest in infrastructure projects as of tomorrow, 2 April 2016.

The European Commission proposed an amendment to EU prudential rules, known as Solvency II, as part of the CMU Action Plan launched on 30 September 2015. This amendment to a delegated act under Solvency II was published recently in the Official Journal and enters into force tomorrow, 2 April 2016.

Investment in infrastructure projects is essential to support economic activity and growth in Europe. By removing the challenge to investment experienced by insurance companies, the measures that came into force recently will mobilise private sector investment, which is a key objective of the Investment Plan for Europe. The insurance industry is well-equipped to provide long-term finance by investing in equity shares as well as loans of infrastructure projects, but currently less than 1% of their total assets are allocated for this purpose. As a result of this change to Solvency II, insurers will have to allocate less capital and find it more attractive to increase investment and play a bigger role in European infrastructure projects.

Jonathan Hill, Commissioner for Financial Services, Financial Stability and Capital Markets Union, said recently: “One of the goals of the CMU is to promote growth and jobs by knocking down barriers to investment. Insurers told us that some of the Solvency II rules were putting them off investing in infrastructure. We have listened to what they said - as from today they will find it easier and more attractive to invest in European infrastructure projects. I hope they will take advantage of this change."

Based on expert advice from the European Insurance and Occupational Pensions Authority (EIOPA), the recent delegated act lowers certain requirements for investing in so–called qualifying infrastructure projects. In particular, it lowers the risk charges for insurers' equity and debt investments in these projects, under the standard formula for calculating capital requirements in Solvency II. The risk calibration for investment in unlisted equity shares of such projects has been reduced from 49% to 30%. Risk charges for investments in infrastructure debt were also reduced by up to 40%.

Background

This legislation is formally an amendment to the Solvency II Delegated Act (Commission Regulation (EU) 2015/35). It was published recently in the Official Journal, following a six month scrutiny period by the Council and the European Parliament. Solvency II is the EU-wide prudential framework for the insurance sector.

The recent act also covers insurers' investments in European Long-Term Investment Funds (ELTIFs). These investments will benefit from the same capital charges as equities traded on regulated markets, lower than that for other equities, bringing them in line with investments in European Venture Capital Funds and European Social Entrepreneurship Funds. Equities traded on multilateral trading facilities (MTFs) will also benefit from the same capital charge as equities traded on regulated markets. Transitional provisions for equity investments, phasing in Solvency II capital charges over 7 years, are extended to unlisted equities. Further details are available in the insurance section of the Commission's website.

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