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Regulation

EC proposes lowering capital requirements for insurance companies with private equity, private debt

The European Commission proposed lowering capital requirements for insurance companies holding private equity and private debt assets in an amendment to Solvency II rules.

Aimed at supporting small and medium-sized companies in Europe, the review of Solvency II capital requirements will introduce a new category of long-term investments set to permit lower limits on holding private equity and private debt funds.

Funds that will fall under the newly created category will have a simplified calculation of capital requirements at a reduced 22% risk-weight, allowing insurers to set aside less capital to manage the risks of these investments.

"Insurers were highlighting that some of the Solvency II rules were preventing them from investing more in equity and private debt," said Valdis Dombrovskis, EC vice president responsible for the euro and social dialogue, in a news release. "We have listened to their concerns. The amendments adopted (March 8) will make it easier and more attractive for them to provide long-term funding to the economy." Mr. Dombrovskis is also in charge of financial stability, financial services and the capital markets union for the EC.

The proposed amendments will considered in the next three months by the European Parliament and the European Council before they are approved.

According to data from Invest Europe, an association representing Europe's private equity, venture capital and infrastructure sectors, insurance companies accounted for 8% of all European private equity fundraising in 2017, the most recent data available, which stood at €91.9 billion ($110 billion). Pension funds, which do not face capital requirements under Solvency II, accounted for 29% of the overall fundraising.