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EIOPA publishes technical advice on insurance investment products

The European Insurance and Occupational Pensions Authority (EIOPA) is looking for feedback on its advice on infrastructure investment risk categories.  08 Jul 2015

In February the European Commission asked EIOPA to put together advice on identifying, and establishing the parameters for, investment risk categories.

Infrastructure investments are increasingly important to growth, and insurers are an important source of funds for these investments, EIOPA said in its consultation document.

The long term nature of the liabilities involved in infrastructure investments fit well with the risk profile of insurers, EIOPA said.

EIOPA has chosen to focus on debt and equity investments for infrastructure projects, as these have a "higher degree of revenue certainty", it said. It has put together proposed criteria and definitions for these investments, and looked at how to establish parameters for the new risk categories in line with the new Solvency II directive.

The Solvency II regime comes into force across the EU on 1 January 2016, and sets out broader risk management requirements for European insurers, requiring firms to hold enough capital to cover all their expected future insurance or reinsurance liabilities.

EIOPA has looked at how the new categories of investment fit within the structure of the market and counterparty default risk module, it said, and whether new sub-modules are needed. Market risk covers the risk of loss due to fluctuations in the price of assets, while counterparty risk refers to potential loss from another party's failure to perform its obligations.

EIOPA has attempted to identify any obstacles to infrastructure investments in Solvency II that are not justified by prudential considerations, and to suggest solutions, it said.

It is also important to analyse whether current investment and governance requirements under Solvency II are adequate to make sure that the risks of "this complex, heterogeneous and, for insurers, relatively new asset class" are properly managed, EIOPA said.

The current consultation will end on 9 August, and EIOPA aims to publish its final advice in September, it said.