More insurers will use infrastructure investments

Swiss Re’s recent announcement that it will invest $500 million in businesses and assets related to long-term infrastructure deals will likely represent just the start of a growing trend of other insurers and reinsurers doing the same thing, according to the reinsurer.

Swiss Re has awarded the mandate to manage the investment to Macquarie Infrastructure Debt Investment Solutions. It said it will seek investments in senior secured debt of infrastructure businesses and assets located primarily in northern Europe.

Klaus Weber, head External Investment Mandates at Swiss Re, told Intelligent Insurer that he does not regard the investment as a deviation from Swiss Re’s existing strategy but rather as a complementary extension that fits well with its needs as an investor.

“Infrastructure debt has many of the characteristics we as a long term liability driven investor traditionally invests into, so in that perspective it is not a new direction for Swiss Re,” he said. “However, the investments in infrastructure debt will generate further diversification to our current credit portfolio.”

Weber believes other insurers will eventually follow suit in utilising these opportunities. There is a specific requirement for such funds at the moment as traditional sources of financing in the European infrastructure market – lending by states, governments and banks – are increasingly scarce. Investments in infrastructure debt also offer an alternative to other investments such as government bonds where yields have been very low recently.

“The particular characteristics of infrastructure debt, long maturities and stable cash flows, are a strong match for the cash flows of the outstanding liabilities our (re)insurance business generates,” he said.

“This is one reason why we believe that the market for infrastructure debt will attract more insurance companies and other long-term investors to consider investments in this asset class. Recent dialogue and increased industry focus certainly support this view.” He added that Swiss Re also expects the market to evolve substantially over the next few years.

He denies, however, that Swiss Re’s interest in this product has been prompted by the poor investment returns generated by more traditional investment sectors. Rather, this offers the reinsurer better diversification, he said.

“In line with our balanced investment strategy, we intend to further diversify our credit risk exposure. All such investments need to positively contribute to a favourable risk return profile. Infrastructure debt is no exception to this rule and we expect attractive risk adjusted returns.”

And despite recent reports of regulators expressing concern over insurers getting involved in investments normally associated with the banking industry, Weber shrugs this off as an issue. “We maintain an open and transparent communication with our regulators and have not experienced such concerns,” he said.