Credit financing by insurance companies: IVASS issues the relevant decision

By means of Decision no. 22 of October 21st 2014 (the “Decision”), the Italian Supervisory Authority on the Insurance Market (“IVASS”) introduced much anticipated amendments to ISVAP Regulation no. 36 of January 31st 2011 – concerning the guidelines on investments and assets representing technical provisions referred to under articles 38 (2), 39 (3), 40 (3), 42 (3) and 191 (1, d) of Legislative Decree no. 209 of September 7th 2005 – so to allow insurance undertakings to carry out credit financing towards companies, thus widening the investment opportunities for the cover of technical provisions.

The Decision – subject to public consultation twice – implements Law Decree no. 91 of June 24th 2014 (the so called “Competitiveness Decree”), converted and amended by Law no. 116 of August 11th 2014, which had already laid down framework rules on money lending by insurance undertakings towards companies. Pursuant to said framework, IVASS set forth conditions and limitations for the lawful performance of the business at issue as well as individual procedural rules that undertakings shall comply with in order to be duly authorized to lend money to companies.

The first limitation concerns possible receivers of loans, an aspect already envisaged by the Competitiveness Decree: microenterprises – as defined by Recommendation 2003/361/EC, i.e. companies which employ fewer than 10 persons and whose annual turnover and/or annual balance sheet does not exceed EUR 2 million – and natural persons cannot be financed by insurance undertakings.

Furthermore, investments in non-performing loans or in loans granted to companies whom the insurance undertaking is linked to due to control or participation are not allowed. A quantitative limit is provided for as well: credit financing is allowed up to a maximum value amounting to 5% of the technical provisions, which can be further increased up to 8% upon specific authorization.

With reference to the procedural aspects, the Decision provides for the following: (i) drafting by the insurance undertaking of a Financing Plan; (ii) IVASS authorization of the Financing Plan; and (iii) final approval of the Financing Plan by the insurance company.

In detail:

(i). The insurance undertaking which is going to invest its assets in credit financing shall draft a detailed Financing Plan, specifying, amongst other elements, the following:

1. the description of how credit financing will contribute to the determination of the strategic investment policy;
2. the description of how credit financing will be enacted, specifically if autonomously or through the help of a bank or a financial intermediary in choosing credit receivers. Indeed, it is not required that credit receivers are chosen through the help of a bank or a financial intermediary; on the contrary, the insurance undertaking can do so autonomously. However, the latter option entails consequences on the authorization procedure, as specified below;
3. the organizational and managing structure set up by the insurance company for the pursuing of credit financing;
4. the specific criteria for choosing credit receivers, taking into account: (i) credit checks; (ii) legal form; (iii) business; (iv) geographic area; (v) duration and target of the loans; (vi) warranties and/or other contractual terms for guaranteeing the retrievableness of the monies financed (the so called “covenants”). In case selection is carried out through the help of the subjects listed sub above, the selection criteria are formalized in the contract regulating the relationship between the latter and the insurance company;
5. the definition of the amounts for the financing activity, having regards to the limitations provided for by the law and taking into account the requirements of adequate solvency provided for by the Competitiveness Decree as well as the loss-absorbing capacity, as per the future surveillance regime set forth by Directive no. 2009/138/EC (“Solvency II” Directive).

(ii). Once drafted, the Financing Plan is transmitted to IVASS for authorization. The Plan is evaluated according to the criteria set forth by the Decision and, within 90 days, IVASS shall grant or deny the authorization. The Authority can also request the undertaking to amend the Plan: in this case, the Plan shall be amended accordingly and re-forwarded to IVASS; the 90 days deadline is suspended meanwhile.

A tacit-consent regime is envisaged: thus, absent a formal denial by IVASS within the 90 days period, the authorization is deemed as granted. However, in case the insurance undertaking is not assisted by a bank or a financial intermediary in order to choose credit receivers, IVASS shall in any case adopt a formal authorization (or denial) in which it shall also indicate the limitations – quantitative ones as well – concerning the loans to be granted.

(iii). After having been authorized, the Financing Plan shall be formally adopted by the undertaking’s board of directors: afterwards, the insurance undertaking will be entitled to carry out money lending toward companies.

As far as the entry in force of the rules at issue is concerned, pursuant to Article 22 of the Decision, they will enter in force the day subsequent to their publication on the Italian Official Journal (“Gazzetta Ufficiale”).