One-size-fits-all is sometimes a good thing

Establishing infrastructure debt as a tradeable asset class through standardisation

Infrastructure spending is key for economic growth and job creation – something on which policymakers now broadly agree. Moreover, given governments' very substantial infrastructure financing needs and the fact they can't shoulder this burden on their own, it's vital the private sector is being incentivised to help close this infrastructure financing gap. Indeed, because of the favourable risk-return profile of infrastructure investments, long-term private investors, like pension funds and insurers, are well suited to invest in this asset class. However, it remains a challenge for private investors to tap into this asset class because of the complexity and lack of standardisation of this kind of debt. And these are not the only hindrances. For long-term institutional investors, a solution would be to create tradable assets.  Standardisation in reporting and disclosure requirements and strengthening investor rights would also encourage investors.

Where does Swiss Re stand?

Swiss Re has repeatedly called for the tradability of infrastructure debt. Among other things, private-sector investments should be mobilised to build renewable energy infrastructure and protect our cities against the effects of climate change. Institutional players are well positioned to embrace infrastructure investments provided the right regulatory framework is in place and there is standardisation of project documentation and disclosure requirements.  The insurance industry is willing to do its share – the time is now to start building more resilient infrastructure.

Public works work wonders

Building better rail links between airports and large cities, improving the distribution of energy – including renewable energy – or strengthening highway infrastructure are crucial for the proper functioning of an economy and its productivity. However, given the substantial impediments to long-term investing, the global shortfall in infrastructure finance is still running at around USD 1trn per year.

Small step, giant impact – getting insurers involved

If insurers were to increase their infrastructure debt allocation by just ~1% it would result in roughly USD 300bn of additional infrastructure investment. Based on the infrastructure multiplier in a low growth environment, this would generate USD ~1trn of additional global GDP output annually.

Supporting financial resilience

Re/insurance supports financial resilience by acting as a shock absorber and promoting growth through its core businesses. This is particularly important in a challenging and volatile macro-economic environment.

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