Guernsey’s development of green and sustainable finance continues with consideration being given to a introducing a lower risk weighting for green investments held by life insurers. The Guernsey Financial Services Commission (GFSC) has issued a consultation paper on proposed amendments to its Insurance Business Solvency rules. The consultation follows on from a Discussion Paper on green insurance issued by the GFSC in 2018.
The amendments would reduce the capital requirements applicable to green fixed income assets of commercial life insurers and commercial life reinsurers.
The proposals are limited to life insurers, as 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 on launch in 2018. The purpose of the green discount is to encourage green, sustainable investment by life insurers, as long-term investors, and thereby help promote positive environmental outcomes.
Dr Andy Sloan, Deputy Chief Executive, 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.
“It would be an innovative move and could well generate interest from life insurers new to the jurisdiction, 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.”
Guernsey is strategically committed to sustainable finance. It is a member of the United Nations’ Finance Centres for Sustainability Global Network and the GFSC is a member of the Network for Greening the Financial System and the Sustainable Insurance Forum. The GFSC is also a member of the Sustainable Insurance Forum and the Guernsey International Insurance Association is a signatory to the United Nations’ Principles for Sustainable Insurance.
In its consultation, the GFSC states that the proposals are expected to directly affect long-term insurance licensees and applicants, and are of likely to be of particular interest to members of the wider green investment community and consumers of green investment products.
The consultation (https://www.gfsc.gg/news/article/consultation-paper-proposals-green-investment-discount-life-insurer-capital) closes on 10 November 2020.