Slovenia Insurance Supervision Agency sets supervisory expectations for insurers’ management of risky and complex investments under the prudent person principle

The Slovenia Insurance Supervision Agency published a supervisory position setting out expectations for insurers on how to identify, define and manage risky or complex investments in line with the Solvency II prudent person principle, drawing on an European Insurance and Occupational Pensions Authority peer review. The Agency reiterates that Solvency II does not impose specific investment limits, but requires insurers to invest only in assets and instruments whose risks they can properly identify, measure, monitor, manage, control and report, and reflect in their assessment of solvency needs, with the overall portfolio meeting safety, quality, liquidity and profitability objectives. It describes risky or complex investments as those outside traditional asset classes (equities, bonds, loans, real estate, deposits and cash), while also taking into account security, quality (including credit quality and external factors), liquidity and return, and notes that risk assessment is often constrained by limited information. Supervisory reviews will focus in particular on holdings reported under CIC codes 5 (structured securities), 4 (collective investment undertakings including real estate, alternative, private equity and infrastructure funds), 3 (equity including unrated shares and shares without an active market), 28 (subordinated bonds) and similar instruments. Insurers are expected to maintain an investment strategy aligned with their business model and risk appetite and tolerance, a transparent and traceable investment decision process with internal controls, suitably qualified staff, mechanisms to manage conflicts of interest, and appropriate valuation and reporting. The Agency will monitor market developments and update its definition of risky or complex investments where necessary.