Banks may be key for insurers to fulfill EU investment needs

By Huw Jones and Carolyn Cohn

LONDON (Reuters) – Efforts to get insurers to plug Europe’s investment gap by backing riskier assets could be undermined if banks are unwilling to share crucial credit data with them, a European Union insurance regulator said.

EU insurance capital rules known as Solvency II are being reviewed to make it easier for insurers to put their financial firepower to work in alternative investments, such as in infrastructure, unlisted equity or loans.

These attract insurers struggling during an era of low interest rates as they typically offer higher returns, but are typically illiquid or less liquid, with no deep market, thereby making them difficult to price.

This meant much could hinge on whether insurers can develop “partnerships” with banks to tap the credit history data needed for assessing risks, Jean Hilgers, a European Insurance and Occupational Pensions Authority (EIOPA) board member, said.

But it is unclear to what extent banks will share commercially sensitive data from their internal models, Hilgers, who is also a director at the National Bank of Belgium, said.

“Will this be seen as a possible business line for them, a market to be developed?” Hilgers told Reuters on Thursday.

There are also no benchmarks for measuring returns from such investments, and how companies manage risks will have to be “completely revisited”, calling for specialist staff, he said.

Insurers would have to have clear “operational limits” for risk, with the board members and senior managers fully understanding the complexity of some investments.

Lewis Webber, head of insurance data analytics at the Bank of England’s Prudential (LON:) Regulation Authority, told the same conference that it was a “good thing” for the economy that someone holds “illiquid, untradable cash flow producing things”.

“Exposures need to be suitable for the liabilities they back. It’s more natural for insurers to hold those kind of assets to back their liabilities than banks, given the differences in business model,” Webber said.

EIOPA will make recommendations on changes in February but it will be up to the EU’s European Commission to decide whether to put them into draft legislation.

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