Modernization and diversification: the progress of the SBS in the regulation of insurance investments

The Superintendence of Banking, Insurance and Private Pension Fund Administrators (SBS) has taken a crucial step in improving and updating the regulation of insurance companies' investments by publishing the draft modification of the Regulation on Insurance Companies' Investments on May 17th. This project has sparked great interest in the financial sector, as it introduces various innovations aimed at boosting the efficiency and diversification of these entities' investments. One of the main innovations proposed by this project is the inclusion of private debt and co-investments as new eligible instruments, which expands the range of options for insurance companies. Additionally, the project suggests that investment funds can allocate up to 20% of their portfolio to non-investment grade countries, allowing them to access investment opportunities in emerging markets with growth potential. Furthermore, the project includes the participation of insurance companies as reportees in repurchase operations, streamlining and facilitating the management of their investments. The proposal also simplifies the process of investing in dual currencies by automatically making them eligible, reducing bureaucracy and facilitating investment decision-making. On the other hand, the project incorporates criteria that the SBS had previously outlined in official communications, such as the requirement for the underlying assets of the trusts in which insurance companies invest to be tangible. It also allows the use of risk ratings issued by entities registered with recognized regulators, providing greater flexibility in evaluating investment risks. Despite the progress represented by this project, there are areas that could be improved. For example, it is suggested to explicitly include direct investment in Real Estate Investment Trusts (REITs) or Business Development Companies (BDCs), as well as defining the conditions for investing in synthetic Exchange-Traded Funds (ETFs). These adjustments could enhance the diversification of insurance companies' investment portfolios and boost their long-term profitability. Regarding the self-use properties of insurance companies, there is a need to review the eligibility requirements, as imposing excessive conditions could limit insurers' ability to efficiently manage their assets. Additionally, the proposal for a 2% alignment of interests for alternative funds could impact the fund offerings by applying homogeneous criteria to strategies with different risk levels. In this regard, it is essential for the SBS to consider the comments and suggestions from various market participants during the open consultation period until June 17th. It is expected that the final modifications to the Regulation on Insurance Companies' Investments will promote a favorable investment environment, encouraging diversification and efficiency in managing insurance companies' assets for the benefit of policyholders and the financial system as a whole. In conclusion, the proposed modification of the Regulation on Insurance Companies' Investments represents a significant advancement in modernizing the regulation of the insurance sector in Peru. However, certain aspects need to be refined to ensure that insurance companies can fully capitalize on investment opportunities in a safe and transparent environment. Collaboration between the regulator, sector companies, and investors will be key to achieving a strong regulatory framework tailored to the current market needs.