The European Insurance and Occupational Pensions Authority (EIOPA) recently unveiled rules that will allow more insurance companies to invest in infrastructure as long as their risk management processes are comprehensive and effective.
A recent Reuters report pointed out that the EIOPA voiced their concerns to EU legislators—a day prior the release of plans for a “capital markets union” which will boost finance jobs and turnaround the sagging European economy.
On the political front, European politicians are looking for insurers to allocate more of their 10 trillion euros in rebuilding infrastructure such as rail, bridges, roads and renewable energy. Confidential documents seen by Reuters shows that the EU Commission was gearing up to “trim safety buffers” insurers must stash in the event an investment goes south.
On Tuesday the insurance regulator advises setting a separate asset class for high-quality infrastructure investments that would fall under new risk capital rules known as Solvency II, which goes into effect on Jan. 1
According to a statement from EIOPA, the proposed approach will reduce risk charges for qualifying infrastructure project investments in equity and debt. Moreover, the insurance watchdog is proposed robust risk management requirements including active monitoring of exposures to infrastructure projects as well as sound stress testing of their cash flows.
"EIOPA has made remarkable progress in proposing a new asset class and a prudentially sound regulatory treatment within a very short timeframe", said Gabriel Bernardino, chairman, EIOPA. “However, infrastructure projects can be very complex and require specific risk management expertise. It is very important that risks of infrastructure investments are properly managed and monitored over time.”
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