Solvency II: EIOPA consults on treatment of infrastructure corporates

The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper on the European Commission’s “… request to EIOPA for further technical advice on the identification and calibration of other infrastructure investment risk categories i.e. infrastructure corporates“.

This process began in February 2015, when the Commission made its first call for an EIOPA technical advice on infrastructure investments by insurers. On that occasion:

  • EIOPA published a consultation version of its draft advice to the Commission in July 2015;
  • EIOPA submitted its final advice to the Commission on 29 September 2015 – in particular, EIOPA proposed lower Solvency II capital charges for debt and equity investments in “qualifying infrastructure projects” that were financed using an appropriate SPV structure; and
  • The Commission accepted the IOPA’s advice and adopted an amendment to the Solvency II Delegated Regulation, the following day.

In its second call for advice, of 14 October 2015, the Commission asked EIOPA for a further technical advice on infrastructure investments by insurers. On this occasion, EIOPA was given 4 main tasks – to: (i) “Define criteria or classifications to identify safer debt or equity investments in infrastructure corporates with or without an External Credit Assessment Institution …rating“; (ii) “Advise on appropriate calibrations for such investments … based on the Delegated Regulation amendment of 30 September 2015 … or … on new asset categories“; (iii) “… provide a rigorous framework for insurers performing due diligence“; and (iv) “… include a cost-benefit analysis“.

EIOPA’s draft advice appears to meet each of these challenges.

EIOPA is now asking for “views in particular on … [(i) its] analysis of appropriate calibrations for investments in infrastructure corporates within the Solvency II standard formula… [(ii) its] criteria to identify safer investments in infrastructure corporates … [(iii) a set of] revisions to the scope and criteria for infrastructure projects indicated in EIOPA’s [first] advice… [and (iv) its proposed] risk managementrequirements…”

The consultation period ends on 16 May 2016. There’s already been an active dialogue between EIOPA and some of its stakeholders; including via a Q4 2015 Call for Evidence, and a February 2016 roundtable discussion. We should therefore perhaps expect EIOPA and the Commission to follow a timetable which is like the the one they followed last time. If they do, EIOPA’s final advice will be materially the same as the draft advice it’s just published; that advice will be submitted to the Commission in (say) July 2016; and adopted immediately afterwards. We’ll see.