Commission becomes world’s first regulator to introduce a green insurance capital regime

In October of this year, the Commission issued a consultation paper proposing amendments to the Insurance Business (Solvency) Rules 2015 which would see the introduction of a specific approach for green assets into the Solvency Rules and help to incentivise increased investment in green assets by life insurers.

The background to this move follows global political and public debate around environmental matters and a tacit nod that financial services regulators need to do more in ‘greening the industry’. In particular, regulators have a responsibility for financial stability, which includes the need to help mitigate the adverse financial impacts of climate change.

The purpose of the ‘Green Discount’ proposed by the Commission is to encourage green, sustainable investment by life insurers and thereby help promote positive environmental outcomes. The Commission’s proposal would enable insurers to purchase green assets in the knowledge that long-term green assets are considered suitable to meet long-term liabilities whilst maintaining policyholder protection.

The Commission is grateful to all those who engaged in the feedback process, either directly or indirectly and in light of the responses, the Commission has decided to proceed with enacting the changes it set out in the Consultation Paper. Life insurers will now be able to apply the Green Discount, in line with the amended Solvency Rules which come into effect today, 15 December.

It will remain the responsibility of each insurer to determine its approach to green assets, in line with the standard requirements relating to fiduciary duties and robust corporate governance. Life insurers adopting this approach would be expected to adapt their policies,
procedures and controls to ensure that investment in green assets is made in a prudent manner whilst ensuring policyholder interests continue to be protected.

The current rules can be found here.