European insurers’ ratings safe from EIOPA fossil surcharges, Fitch says

Written by Adam Cadle

22/11/2024

European insurers’ ratings will not be affected by the capital surcharges on fossil fuel-related assets recently proposed by EIOPA, Fitch Ratings has said.

“The surcharges would have a limited impact on Solvency II (SII) ratios due to companies’ low direct exposures to fossil fuel-related equities and bonds,” it added.

EIOPA has recommended the surcharges to reflect the transition risks tied to fossil fuel-related assets. For equities, it recommended an addition of up to 17pp to the 39% risk charge applied in the SII standard formula to Type 1 equities (those listed in regulated EEA or OECD markets). For spread risk on corporate bonds, it has recommended a supplementary charge of up to 40% in multiplicative terms.

The equity surcharge would typically reduce average SII ratios by less than 100bp, Fitch stated.

“The highest average impact was for Norway (173bp), which probably reflects more exposure to oil companies in Norwegian insurers’ investment portfolios. However, even this is not significant in solvency terms. The corporate bond surcharge would also typically reduce average SII ratios by less than 100bp, with the highest impact being for Italy (134bp).”

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