Insurers are well-placed to help plug the $500bn per year gap in infrastructure funding between now and 2030, despite Solvency II looming on the horizon, Standard & Poors has said.
An S&P briefing note published today stated that recent developments indicate that the infrastructure and insurance sectors could be strengthening their ties and helping each other to fully accomplish their roles.
The agency's note examines how infrastructure investments could affect insurers' financial strength ratings by looking at how these investments might affect their operating performance, portfolio quality and diversification and capital adequacy.
It estimates that infrastructure financing needs worldwide could total $3.4 trillion annually through to 2030.
'While we expect governments and banks will remain the dominant investors in infrastructure programmes, we also estimate $500bn in additional funding will be needed each year to make up the shortfall,' the note stated.
'The opportunities for insurers to play a greater role in filling the infrastructure funding gap are apparent.'
But S&P warned that as insurer's interest in, and exposure to, infrastructure investments rise, so could the risks and consequent impact on its credit quality.
'Regulation, [in particular Solvency II] could challenge some insurers' commitment to infrastructure investment. Regulation project complexity, illiquidity and a lack of suitable projects may thwart insurers' progress in making such investments,' the note said.
Despite this, S&P stated that infrastructure investments could be a good match for life insurers' liabilities, because of their long-term maturity and attractive yields.
'We believe that Solvency II might boost investment in infrastructure for insurers with active risk management processes,' the note said.