The European Commission plans to extend the looming reductions in the Solvency II capital charges on "safe" infrastructure projects to include insurers' investments in companies engaged in infrastructure development. In a letter dated 14 October, the EU executive called on the European Insurance and Occupational Pensions Authority (Eiopa) to offer advice on revising the capital treatment of infrastructure corporates.
This comes only two weeks after the Commission adopted a major legislative proposal to slash the capital charges that apply to debt and equity investments in low-risk infrastructure projects, which are typically made through special purpose vehicles (IAR, 1 October, Commission orders cut to Solvency II charges on infrastructure and ABS).
Eiopa looked into the treatment of investments in companies engaged in infrastructure under the standard formula in the past, but stopped short from proposing changes as it found little evidence that the risk profile of these companies is different from companies in other sectors.
The authority also argued that the targeted corporates may have other business that is not related to infrastructure, which would create delineation problems.
However, this justification has failed to convince the Commission, which is insisting that Eiopa builds on the previous assessment and reconsiders its position.
Olivier Guersent, deputy director-general for financial services and internal market, said Eiopa should provide criteria or classifications to identify infrastructure corporates, as well as assess whether the capital charges that apply to infrastructure projects could be extended to those. If this is not possible, the Commission expects alternative calibrations to be proposed.
Guersent said the technical advice, including a cost-benefit analysis, should be discussed at the meeting of the board of supervisors on 28-29 January 2016 and proposed that a representative of the directorate-general participate as an observer in the meetings and conferences calls of the group steering this project. This is the first time the Commission has made such a request explicit in a call for advice.