Last 2 July 2015 EIOPA published its Consultation Paper on the Call for Advice from the European Commission on the identification and calibration of infrastructure investment risk categories.
This Consultation is a natural response to the continuous increase experienced in infrastructure investment and promoting initiatives in the last years, not only at a global level in Europe, but also at a national level, particularly in Spain (amongst other Member States).
Insurers constitute an important source of funds for such kind of investment as the long-term nature of the liabilities linked to that kind of investment may mean that such investments are suitable for their risk profile. For this reason, the European Commission issued a call for advice in February 2015 requesting EIOPA to provide:
- Clear definitions of debt and equity infrastructure investments that could be used to specify new risk categories.
- Calibrations for those new categories of risks in line with the new capital requirements established by Directive 2009/138/EC (Solvency II).
- Assessment on how the new categories may fit the existing structure of the market.
- Identification of any potential existing obstacles to infrastructure investments in the Member States legislations.
In this regard EIOPA has given some definitions such as “infrastructure asset”, “infrastructure project entity” or “special purpose entity” which help to specify the structural sector risks.
In addition, EIOPA has made express reference to different types of risks linked to the infrastructure investments, such as predictability of cash flows, contractual framework, credit quality, political risk, structural requirements, financial risk, construction risk, operating risk, the design and technology risk and the equity risk calibration.
Thus, after a deep analysis of the sector and its appropriate risk management, EIOPA proposes that it is necessary to stipulate some steps and procedures to be implemented by undertakings to address the risks posed by such investments.
In this regard, EIOPA’s advice asserts that undertakings need to have written policies covering all materiel risks to which they are exposed. In particular investment risk management, asset-liability management, liquidity risk management and concentration risk management
On the other hand, EIOPA has stated that it has not identified any non-prudentially justified obstacles to infrastructure investments in the Delegated Regulation.
In any event, the market operators are now entitled to send EIOPA their comment and suggestions concerning the Paper until 9 August 2015.