Speaking at Insurance Europe's conference in Malta on June 12, Bernardino warned that capital charges and other constraints on investment in illiquid securities such as infrastructure and corporate loans had to be tailored with insurers' liabilities in mind.
"I see it as positive that the insurance industry has a role in long-term investment, but there have to be preconditions to this because it all starts with the liabilities you generate. If you generate long-term liabilities with characteristics of illiquidity then you can have more long-term investments. [But] let's be frank, we have seen in life insurance a movement towards products with more and more options, more liquid characteristics, so there is a conflict here," he said.
Bernardino added that Eiopa was wary of endorsing any policy that might lead to price distortions in the capital markets. "We need to be careful not to give an incentive to a particular asset class. [We want] sustainable growth, but not at any price," he said.
Insurers are clamouring for Solvency II capital charges on long-term investments to be relaxed. Charges for asset-backed securities (ABSs) and infrastructure debt are seen to discourage investment in these instruments.
Currently the directive treats infrastructure debt according to the same capital rules as corporate bonds, with the charge modified to reflect credit risk and duration. A 25-year BBB-rated infrastructure debt instrument, for example, would incur a 32.5% capital charge.
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