With Resolution No. 22 of 21 October 2014, Italy's insurance regulator IVASS announced changes to the regime governing the kinds of investments and assets that insurance companies may use to cover technical reserves (riserve tecniche). Following two rounds of public consultation, the regulator revealed its decision to expand the range of assets to include direct loans, provided those loans are not to micro-enterprises [(businesses with turnover of less than euro 2 million, and less than ten employees)] or natural persons. The expansion is subject always to the overarching objective of ensuring the insurance companies' stability and their sound and prudent management. The new measures formed part of a wider strategic move to broaden the sources of financing within the economy, in particular to small and medium-sized enterprises, "as a means of reviving investment and supporting economic activity", said the regulator.

In light of the particular nature of insurance companies, and given that they have not previously carried on such lending activities, the regulator will be authorising the investments, and has imposed specific requirements for their grant. In summary, an insurance company that wishes to include such assets within its technical reserves will be required to prepare and submit a business plan that will be subject to review by IVASS, to ensure its "overall coherence". The plan must include descriptions of the way in which lending will be implemented; the structures that will be put in place to handle lending activity; the criteria that will be applied in selecting borrowers; and quantitative limits that take account of the capital adequacy requirements recently legislated domestically and the rules on loss-absorbing own funds under the Solvency II Directive. There will also be a general quantitative limit upon such lending, to not more than 5 per cent. of technical reserves, which may be increased to 8 per cent. upon authorisation. Additionally, deteriorated loans, and loans to entities that are linked to the insurance company by their control or by shareholding, will be prohibited from counting towards technical reserves.

Please find here the link to IVASS Resolution No. 22 of 21 October 2014 (available in Italian only).