Insurers’ Investment in Infrastructure: Overview and Treatment under Solvency II
The financial market environment poses serious challenges for insurance companies to provide stable returns on a long-term basis, as particular traditional asset classes are currently characterised by generally low interest rates and high volatility. Against this background, the aim of this paper is to study infrastructure investments from an insurer’s perspective. In particular, based on a categorisation of different types of infrastructure investments, we provide an overview of main characteristics along with risks and chances. In addition, the treatment of different infrastructure investments under Solvency II regulations is studied, which can have a considerable impact on an insurer’s asset management decisions. The study shows that the attractiveness of infrastructure investments strongly depends on the type of investment and its treatment under Solvency II and that considerable risks can be involved.
KeywordsCash Flow Private Equity Public Private Partnership Infrastructure Investment Infrastructure Project
Unable to display preview. Download preview PDF.
- Beeferman, L.W. (2008) Pension fund investment in infrastructure: A resource paper, Occasional Paper Series, No. 3, Harvard Law School, December.Google Scholar
- Beyerle, T., Voß, O. and Weber, H. (2011) Investitionen in Infrastruktur. Chancen durch die Energiewende in Deutschland, Bonn: IVG-Immobilien.Google Scholar
- Bird, R., Liem, H. and Thorp, S. (2012) ‘Infrastructure: Real assets and real returns’, European Financial Management. doi: 10.1111/j.1468–036X.2012.00650.x.Google Scholar
- Bitsch, A., Buchner, A. and Kaserer, C. (2010) ‘Risk, return and cash flow characteristics of infrastructure fund investments’, EIB Papers 15(1): 106–137.Google Scholar
- Gatzert, N. and Martin, M. (2012) ‘Quantifying credit and market risk under solvency II: Standard approach vs. internal model’, Insurance: Mathematics and Economics 51(3): 649–666.Google Scholar
- Inderst, G. (2010) ‘Infrastructure as an asset class’, EIB Papers 15(1): 71–105.Google Scholar
- Massing, R. and Pick, W.-D. (2011) ‘Infrastruktur-Investments als Bestandteil von Altersvorsorgevermögen’, Betriebliche Altersvorsorge. 7/2011: 621–625.Google Scholar
- Moody’s (2013) Default and recovery rates for project finance bank loans, 1983–2011, from www.moodys.com, accessed 12 May 2013.
- OECD (2006) Infrastructure to 2030: Telecom, Land, Transport, Water and Electricity, Paris: OECD Publishing.Google Scholar
- Peng, H.W. and Newell, G. (2007) The significance of infrastructure in investment portfolios. Pacific Rim Real Estate Society Conference, 2007, Fremantile.Google Scholar
- Preqin (2012) 2012 Preqin Global Infrastructure Report, from www.preqin.com/, accessed 14 October 2012.
- Probitas Partners (2007) Investing in infrastructure funds September 2007, from www.probitaspartners.com/, accessed 01 April 2013.
- Rödel, M. and Rothballer, C. (2012) ‘Infrastructure as hedge against inflation — Fact or fantasy?’, Journal of Alternative Investments 15(1): 110–123.Google Scholar
- Rothballer, C. and Kaserer, C. (2012) ‘The risk profile of infrastructure investments: Challenging conventional wisdom’, Journal of Structured Finance 18(2): 95–109.Google Scholar
- S&P (2010) Recovery: Figuring the recovery rates when global project finance transactions default. Global Credit Portal. RatingsDirect. Standard & Poor’s, from www.standardandpoors.com/, accessed 05 May 2013.
- Severinson, C. and Yermo, J. (2012) The effect of solvency regulations and accounting standards on long-term investing. implications for insurers and pension funds, OECD Working Papers on Finance, Insurance and Private Pensions, No. 30, from dx.doi.org/10.1787/5k8xd1nm3d9n-en, accessed 29 September 2013.Google Scholar