Solvency II change makes infra more accessible

Given infrastructure’s role in supporting economic growth, the European Commission hopes the lower risk charges for insurers will encourage them to increase allocations to the asset class.

The European Commission has approved an amendment to Solvency II, the regulatory framework that governs how insurance and reinsurance companies can invest their money, with the aim of making investment in infrastructure easier and more attractive to insurers.

The new legislation, which the European Commission proposed last September as part of the Capital Markets Union action plan, based on expert advice from the European Insurance and Occupational Pensions Authority, lowers the risk charges for insurers’ equity and debt investments in infrastructure projects, under the standard Solvency II formula.

The risk calibration for investment in unlisted infrastructure equity has been reduced from 49 percent to 30 percent, while risk charges for infrastructure debt investments has also been reduced by up to 40 percent, the European Commission said in a recent statement.

“Investment in infrastructure projects is essential to support economic activity and growth in Europe,” the Commission said in its statement. “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.”

The amendment also applies to insurers’ investments in European Long-Term Investment Funds, which will be subject to the same capital charges as equities traded on regulated markets, rather than the higher charges that apply to other equities.

“Insurers told us that some of the Solvency II rules were putting them off investing in infrastructure,” said Jonathan Hill, commissioner for financial services, financial stability and capital markets union. “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,” Hill said.