05 February 2018

ALFI commented on Solvency II delegated regulation

ALFI provided high level comments on the second set of advice on specific items in the Solvency II Delegated Regulation, focusing in particular on the Risk Margin and its impact on the insurance world and thereby the impact on the asset management world.

ALFI has undertaken substantial work with the investment fund community to prepare for the implementation of the Solvency II Directive on 1 January 2016, among others by contributing to and raising awareness to initiatives such as the Tripartite Solvency II Reporting Template (TPT) for asset managers. ALFI has continued with great interest to closely follow the developments as regards the Solvency delegated acts and more recently the Solvency II review.

As the European Commission outlined earlier in 2017, alongside the Capital Markets Union mid-term review, it unveiled measures to encourage long-term investment through a review of prudential calibration for investments in infrastructure corporates. The European Commission proposed reducing the amount of capital that insurance companies need to hold when they invest in infrastructure corporates, as it had previously done for Qualifying Infrastructure Investments and ELTIF. These targeted changes to the Solvency II Delegated Regulation were further intended to support long term investment and investment in infrastructure.

Strengthening the flow of private capital to growing businesses, infrastructure investment, energy transition and other projects to underpin sustainable growth are at the heart of what the European Commission seeks to achieve. It is precisely by removing obstacles that one will create better investment opportunities for pension funds and institutional and retail investors saving for the long-term.

In respect of X. Unrated Debt, ALFI would like to point to the high complexity of EIOPA’s proposal for modelling the credit rating of unrated debt through internal models and for enabling unlisted equities to receive the capital charge of listed equities. Complexity may arguably dry up long term investment flows to issuers, while not necessarily improving risk assessment of such asset classes. Within the spirit of recent initiatives, it is necessary to improve the treatment of unlisted companies, all the more when investments are achieved through investment funds, which in turn provide diversification.

In respect of the XV. Simplification of the look-through approach, ALFI welcomes the opportunity to exclude unit-linked funds from the 20% threshold established by Article 84(3) when they are invested on behalf of clients as far as the final risk is not supported by the insurer.

Finally, as regards XVIII. Risk Margin, ALFI believes that the approach taken in this review is a missed opportunity to thoroughly examine the risk margin and the extent to which it is undermining the investment potential of European insurers and thereby asset managers.

Full comments

© ALFI - Association of the Luxembourg Fund Industry