Insure Our Future urges EC to implement SII climate risk capital charges

Written by Adam Cadle

24/05/2021

A Solvency II (SII) capital charge of 100% should apply to any equity and corporate bond investments in new fossil fuel assets among (re)insurance companies, Insure Our Future has argued.

In a letter to the EU Commission, Insure Our Future said with regard to SII, equity investments in existing fossil fuel assets should be given the highest available capital charge to reflect the higher risk. Furthermore, it said investments in corporate bonds issued by existing fossil fuel companies should be treated the same way as investments in corporate bonds deemed as highly risky under SII, meaning they should be given the same capital charge as bonds with a credit quality of B or lower.

“Investments in fossil fuel assets should not be eligible for the Matching Adjustment under SII,” it added.

“In the face of a potentially unmanageable climate crisis, insurance companies need to expand and accelerate their actions to support the transition from fossil fuels to renewable energy. And more must be done at the regulatory level to ensure that the (re)insurance sector is resilient to climate change and that it plays its role in a just transition.

“Regulation of the (re)insurance sector appears to have often relied heavily on input from the sector. We hope that going forward the voice of civil society organisations will be better heard in this important space.”

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