Tax & legal

The new review could give rise to interesting structuring options and expand the opportunities for doing business with insurance companies.

Whereas normal equities are subject to a stress factor of 39 and 49 per cent respectively, insurers only have to “shock” long-term equity investments at 22 per cent and qualifying infrastructure assets at 30 and 36 per cent respectively.

Ringfencing, which has previously prevented insurers from taking advantage of the lower capital requirements for long-term equity, at least from a German perspective, could be eliminated in future. If the clear legal or contractual attachment of portfolios is no longer obligatory, as it is at present, this would open up interesting structuring opportunities

Another aspect that affects the Own Risk and Solvency Assessment (ORSA) is the increasing sustainability trend. As of 2022 insurers already have to calculate various risk scenarios for their climate change exposure. Although for the moment there are no concrete steps to introduce an additional capital charge for investments that are not sustainable, these developments must be monitored carefully.

The review does not yet include factors to support green investments and penalise dirty ones. But this would have been in the spirit of the Green Deal and helped to channel the urgently needed investments in this direction.

Here you can read the article in Institutional Money 1/2024 dedicated to the main discussion points of the Solvency II review and the emerging sustainability trends that will be having a major impact on the industry – including an assessment by Lutz Boxberger, Managing Director Product Solutions at Golding.