08.01.2014
Investments in infrastructure or renewable energies

Appropriate solvency capital requirement under Solvency II necessary

The regulatory framework of the insurance industry will be redesigned fundamentally in the wake of the implementation and introduction of Solvency II. Investing in sustainable energy and infra-structure projects, however, is subject to disproportionately high capital requirements according to the new supervisory requirements.

For instance, under the envisaged framework investments in infrastructure and renewable energies are included in the category “other equity risks”, which also includes investments in hedge funds and private equity even though these investments involve significantly higher financial risks. As a result, according to the standard approach under Solvency II, relatively risk-free investments in renewable energies and infrastructure would require up to 59 % of own funds.

GDV therefore proposes to introduce within the market risk module a special sub risk-module for unlisted equity investments in infrastructure and renewable energies, reflecting the technical-physical risks the expected returns are exposed to. Given the wide range of potential investment objects, in this new module a conservative risk factor of 20% should be applied to the economic value of the investment. Investments associated with higher or unpredictable risk are excluded through a list of criteria.

The GDV’s complete position paper is available in the download section.

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Proposal

for an appropriate solvency capital requirement for long-term investments in infrastructure or renewable energies

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