Just prior to the end of 2008 the Italian Insurance Regulator, ISVAP, issued a consultation paper on a new regulation concerning unit and index-linked insurance products. This regulation follows the crash of Lehman Brothers and aims to protect policyholders in the event of the failure of insurance products which were previously deemed “safe” by investors.  

The most important changes are:  

  • index-linked products may not make reference to the market prices of specific assets or instruments held by insurers, but only to official equity or debt indexes calculated by third parties on the basis of predetermined and objective parameters, publicly published and related to securities negotiated on regulated markets;
  • the counterparty risk should be borne by issuers both in respect of unit or index-linked insurance products;
  • insurers have to comply with the close matching principle in establishing reserves, by investing in the same class of negotiable securities which compose the reference value, except for where insurers are granted a buy-back option by the relevant issuer or any third party.  

This new regulation, which according to ISVAP aims at increasing transparency and protection for investors, is actually expected to require a 4 per cent increase in the solvency margin of insurers and in practice is likely to result in such products losing their appeal to the insurance industry. The consultation closes on 15 February 2009.