German insurers have called on policymakers to loosen the regulation of infrastructure investments so that they can play a bigger role in financing the ‘Energiewende’, Germany’s historic shift to renewable energy.
German insurers currently have just 1% of their total assets (€1.35trn) allocated to renewable technology and other infrastructure projects. The biggest investments so far have come from the market leaders Allianz and Munich Re.
But in a new position paper, German insurance association GDV said: “Under the right conditions, our members would dramatically increase allocations to infrastructure projects that are economically viable and ecologically sustainable.” By 2020, the government wants renewables to account for 35% of Germany’s power supply against 20% currently. By 2050, it could rise to as much as 80%.
According to the GDV, policymakers in Berlin and Brussels should make several changes to the rules in order to spur renewable investment from its 474 members. First, Solvency II, the EU’s new set of rules for European insurers, should be amended so that renewables are not treated as equities but as a far less risky asset class. In this way, insurers could avoid a capital charge equalling 49% of their renewableinvestment and instead face a minimal charge on par with that for covered bonds. Solvency II treats government bonds as risk-free assets, meaning that a capital charge does not apply.
Second, the GDV called on EU policymakers to lift restrictions that hinder ownership of both the renewable power asset and grid infrastructure (“unbundling”). GDV said that while it understood that the restrictions were in place to promote competition in Europe’s power industry, they were having the unintended effect of holding down investment.
Addressing the German regulator BaFin, GDV said national supervision should be amended so that insurers can invest up to 10% of their assets in infrastructure. Currently, the maximum limit can be somewhat lower, as BaFin lumps infrastructure with private equity and hedge funds. The association also wants BaFin to take into account the lesser volatility of renewable investments compared to equities during stress tests.
The GDV’s paper follows recent comments from EU insurance and corporate pensions regulator the European Insurance and Occupational Pensions Authority (EIOPA) that it is willing to consider amending Solvency II so that the capital charge for renewables is lower than for equities.