EU agrees to ease capital rules for insurers to boost investment

By Huw Jones

LONDON (Reuters) – The European Union agreed a deal on Wednesday to ease its capital rules for insurers, a step the bloc’s lawmakers said could free up tens of billions of euros for investing in green technology and infrastructure to boost growth.

Representatives from EU states and the European Parliament agreed the changes in negotiations on Wednesday to the bloc’s insurance capital rules known as Solvency II that apply to insurers like Generali, Axa and Allianz.

The changes could allow the insurance sector to invest up to a further 100 billion euros ($108.82 billion) into the economy, equal to around 0.6% of the EU’s gross domestic product, the EU parliament’s economic affairs committee said in a statement.

“Solvency II is the world’s gold standard for insurance regulation, but its calibration has been overly conservative,” said Markus Ferber, the committee member who led negotiations on behalf of parliament.

The changes also include new provisions that will require insurance firms to better take into account sustainability-related risks, and to report more about these risks so that policyholders can understand a firm’s green credentials, the committee said.

EU states and the parliament still need to formally vote through the changes.

Post Brexit, Britain is also making similar changes to the same rules it inherited from the bloc, with the UK insurance industry saying it could release billions of pounds for potential investment in infrastructure.

The bulk of capital at EU insurers is being freed up by cutting the so-called “risk margin”, a potential cost for a failing insurer to transfer its policies to a third party to avoid disruption to customers.

“Due to the existing rules, European insurance companies have been forced to hold hundreds of billions of euros in excess capital above the minimum reserves,” Ferber said.

The risk margin is being cut to 4.75% from 6%, though still above the 4% being targeted in Britain, and 3% being discussed in Japan.

Insurance Europe, an industry body, said it welcomed the deal.

“It will help the industry to remain key long-term investors who act as a stabilising force during periods of market volatility,” Insurance Europe’s deputy director general Olav Jones said in a statement.

($1 = 0.9189 euros)

(Reporting by Huw Jones; Editing by Jamie Freed)