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EU watchdog to aid insurers' infrastructure investment

[FRANKFURT] The EU's insurance watchdog wants to help insurers make safe investments in infrastructure projects as politicians encourage them to invest to help boost Europe's struggling economy.

Europe's politicians see insurers' 8.5 trillion euros (US$9.7 trillion) of assets under management as a potential source of funding for building roads, bridges, power grids, hospitals or schools that would spur jobs growth while minimising the hit to strained public sector budgets.

The European Insurance and Occupational Pensions Authority (EIOPA) on Wednesday said it was starting work on a "more granular treatment" of infrastructure investments. "A sound and prudent treatment of insurer's investment in infrastructure projects... ultimately will benefit policyholders and the whole European economy," EIOPA said in a statement.

Insurers see infrastructure as providing potentially better returns than the near-zero interest rates now available on government bonds in which they mainly invest.

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EIOPA, whose job is to protect policy holders, said it would bring together officials from government, insurance, infrastructure funds, asset management and academics in a roundtable discussion to flesh out ideas.

The watchdog said it planned to: - develop a definition of infrastructure investments that offer predictable long-term cash-flows and whose risks can be properly identified and managed by insurers.

- explore possible criteria for a new class of long-term, high quality infrastructure assets, such as standardization and transparency.

- analyse the prudential treatment of the infrastructure investment risks within Solvency II, the set of risk capital rules for the insurance sector due to take effect in 2016.

Insurance Europe on Wednesday said that further changes to Solvency II were needed for insurers to be able to make long-term investments, including infrastructure.

"With this in mind, we welcome the renewed focus and interest generated by the investment plan and the news that concrete work will now begin on this issue," said Insurance Europe deputy director Olav Jones.

Big insurers such as Allianz, Axa and Ergo have already pumped billions of dollars into infrastructure projects but many smaller insurers lack the sophistication needed to evaluate the risks.

"My fear is that the more peer pressure there is to jump in that boat, the less due diligence (insurers will do)," EIOPA Executive Director Carlos Montalvo told Reuters on the sidelines of a conference on Tuesday, adding that he hoped to have the regulator's proposals ready by September.