26 October 2020Asset management analysis

GFSC considers reducing green investments risk weighting for life insurers

The Guernsey Financial Services Commission (GFSC) is considering introducing a lower risk weighting for green investments held by life insurers on the island.

CFSC has issued a consultation paper on proposed amendments to its insurance business solvency rules that would reduce the capital requirements applicable to green fixed income assets of commercial life re/insurers. The move would be designed to encourage green, sustainable investment by life insurers to promote positive environmental outcomes.

The proposals are limited to life insurers because general insurers typically have a shorter investment time horizon and greater liquidity constraints. The criteria for green assets would follow those introduced by the Guernsey Green Fund Rules in 2018.

Andy Sloan, deputy chief executive for strategy at Guernsey Finance and chair of the industry steering group Guernsey Green Finance, said: “Reduction of risk weightings applicable to green assets within solvency calculations could provide a major boost to capital flows into green assets, and would be a significant market development.”

Sloan predicted the move could encourage life insurers to look at Guernsey, “particularly those that are strategically committed to help finance the race to zero, who would be able to accelerate capital flows to climate change mitigation through the application of the regulatory regime.”

The consultation follows on from a discussion paper on green insurance GFSC issued in 2018.

Guernsey is strategically committed to sustainable finance, being a member of the United Nations’ Finance Centres for Sustainability Global Network. GFSC is a member of the Network for Greening the Financial System and the Sustainable Insurance Forum, as well as the Sustainable Insurance Forum. The Guernsey International Insurance Association is a signatory to the United Nations’ Principles for Sustainable Insurance.