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SII infrastructure rules 'unlikely' to have impact on insurers' capital allocations

Written by Adam Cadle

The new capital rules for EU infrastructure investments are "unlikely" to have a meaningful impact on insurers' capital allocations to the asset class, S&P Global Ratings has said.

On 8 June 2017, the EC adopted a delegated regulation amending Solvency II regulation concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance companies in infrastructure corporates. It reduces, by 25 per cent, investment capital charges for qualifying infrastructure corporates compared to the standard formula under the previous SII regulation.

Whilst acknowledging that the amended regulation is a "positive step" toward further infrastructure investment, the S&P Global Ratings said "as liquidity and capital continues to flood many infrastructure markets, we believe the impact of the regulation will be muted by the lack of institutional capacity and funding, which in turn has led to the accumulation of significant pools of private-sector funds and intensifying competition for assets".

S&P Global Ratings stated that there is already ample private capital for infrastructure, but without new government funding models to unlock infrastructure development, countries will not be able to fully benefit from the current market liquidity, low rates, and credit spreads.

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