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IPE special report May 2018

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Commission calls for Solvency II rule change to boost infra spending

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Insurers may have to hold less capital against infrastructure companies as part of a bid by the European Commission to secure more funding for the asset class.

The proposal to alter Solvency II rules was announced as part of the Commission’s mid-term review of the development of the Capital Markets Union (CMU).

It said it wanted to “encourage long-term investment” and would do so through a review of “prudential calibration for investments in infrastructure companies”.

“We propose reducing the amount of capital that insurance companies need to hold when they invest in infrastructure corporates,” the Commission said in a statement.

“These targeted changes to the Solvency II Delegated Regulation will further support investment in infrastructure.”

Solvency II regulations – introduced across Europe at the start of last year – require insurance companies to hold cash buffers on their balance sheet to offset the risk posed by different types of investment.

The capital requirement for infrastructure projects was reduced last year.

Insurance Europe, the continent-wide trade body for the sector, has lobbied in the past for a less restrictive approach to infrastructure investment within the Solvency II rules.

Two years ago, responding to the first consultation about the creation of the CMU, Insurance Europe called for a “flexible definition” of infrastructure as an asset class and changes to the definitions of infrastructure-related debt and equity.

In December 2015, the former EU commissioner for financial stability Jonathan Hill made the case for supporting insurance company investment in infrastructure.

“By making changes to Solvency II, we can define infrastructure as an asset class and reduce the capital ratios associated with it by about one-third,” he said at the time.

Meanwhile, the Commission also confirmed plans to press ahead with a legislative proposal for a pan-European personal pension product

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