EU Cuts Capital Charges on Insurers’ Infrastructure Investments

  • Risk charge on unlisted equity shares falls to 30% on April 2
  • Infrastructure debt investment charge cut by as much as 40%

The European Union lowered capital requirements on insurance companies to spur investment in long-term infrastructure projects as policy makers struggle to revive the bloc’s flagging economy.

Risk charges for insurers’ unlisted equity shares in projects such as energy pipelines, transport links and broadband networks will fall to 30 percent from 49 percent starting on April 2, the European Commission said on Friday. The charges for investment in infrastructure debt will be reduced by as much as 40 percent, the EU’s executive arm said in a statement.

The EU is trying to unlock some of the nearly 10 trillion euros ($11.4 trillion) insurers have invested on behalf of their policy holders by making it cheaper for them to invest in infrastructure that the 28-nation bloc needs to grow. The changes to the insurance rules known as the Solvency II Delegated Act are part of the wider plan for a so-called capital markets union that’s designed to ease the flow of capital and encourage economic growth and job creation.

“One of the goals of the CMU is to promote growth and jobs by knocking down barriers to investment,” said Jonathan Hill, the EU commissioner for financial services. “Insurers told us that some of the Solvency II rules were putting them off investing in infrastructure. We have listened to what they said: as from today they will find it easier and more attractive to invest in European infrastructure projects.”

Before the changes, an insurer’s investment in a major project such as a bridge or a motorway would attract the same capital charges as any equity investment in a privately owned company, even though such structures typically generate steady and predictable cash flows.

Today’s changes will also benefit insurers’ investments in European Long-Term Investment Funds, or ELTIFs. These will now attract the same charges as equities traded on regulated markets rather than the more punitive charges on investments in other types of unlisted stocks, and brings them into line with charges on investments in European Venture Capital Funds and European Social Entrepreneurship Funds.

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