Amid industry concerns that EU insurers will soon need to pullback their private equity investments, European Commissioner Michel Barnier said on Wednesday that the Solvency II directive will be pushed back to 2016. The bill was originally scheduled to go live in January 2014.
Solvency II, a pan-EU regulation covering insurance firms, requires insurers to hold varying levels of capital based on the riskiness of an asset. For private equity holdings, insurers are required to set aside €49 for every €100 invested under a default risk model. The private equity industry has long feared this will price many insurers out of allocating capital to private equity.
Barnier, the commissioner responsible for overseeing implementation of Solvency II, said the original deadline date was “simply no longer tenable.” Before making the delay, Barnier consulted with the European Council and the European Parliament, which are responsible for drafting the law, to see that the new 2016 implementation timetable was agreeable.
The postponement marks another milestone in Solvency II’s long journey to implementation. The bill has undergone multiple delays leading to considerable confusion among insurers and national regulators about their compliance obligations.
Just last month the European Parliament kicked Solvency II into the long grass when it pushed its crucial vote on the directive to March 2014.
The delays have led to a mixed response among insurers' private equity investment allocations. Unperturbed by the directive is German insurance giant Allianz, recently ranked 38 in sister publication Private Equity International’s LP50 – a ranking of private equity’s biggest fund investors in the last 12 months. Michael Lindauer, investment director for Allianz Capital Partners, recently said Solvency II will not have a major impact on its non-core business due to its strict capital ratios in place. Allianz invested $820 million in private equity funds last year.
Aktia Life Insurance in Finland, is not being forced to sell but will not be making any new private equity investments due to Solvency II, said an Aktia spokesman.
But there are insurers cutting back their exposure to private equity. Earlier this week French insurer AXA sold its private equity unit AXA Private Equity to senior management and a group of outside investors.
Another French insurer, Groupama, sold Groupama Private Equity to fund of funds ACG Group in January, as part of an effort to sell assets not central to its insurance business. And in June, Italy's biggest insurer Generali was seeking to sell a portfolio of private equity fund stakes valued at almost €500 million. Generali did not respond to multiple requests for comment asking whether Solvency II played a part in the decision to divest.