Infrastructure investment to surge after pandemic: report
Investment in infrastructure development is set to be one of the main drivers of sustainable growth in emerging markets after the COVID-19 crisis subsides and the insurance sector can provide US$50 billion worth of risk transfer solutions, a recent industry study said.
Emerging markets will invest US$2.2 trillion in infrastructure annually over the next 20 years, equal to 3.9 percent of GDP, according to Swiss Re’s estimates in its latest report.
This will present an annual US$920 billion opportunity for long-term investors, including global insurers, the study noted.
Traditionally, emerging markets have relied mostly on public funding for their infrastructure needs. With government budgets under strain, the private sector will play a bigger role via public-private partnerships, and with finance-embedded risk transfer solutions.
Insurers can further support sustainable growth in emerging markets by closing the infrastructure gap in different regions. With interest rates set to remain low, infrastructure projects can deliver attractive yields to help insurers match their long-term liabilities.
These projects also offer an opportunity for regional and asset class diversification, and for investment in environmentally and socially-responsible initiatives.
A key differentiator for emerging markets in the next two decades will be their ability to commit to policies that favor market-friendly frameworks to make infrastructure a standardized and tradable asset class, as well as low tariff complexity and fiscal prudence, the sigma says.
Markets that embrace these directives will be able to attract infrastructure (and other) investments more easily also from foreign investors, and consequently build stronger economic growth and resilience.
Insurers can also underwrite the risks inherent in the construction and operation phases of infrastructure projects.
The report estimates a total premium opportunity of more than US$50 billion over the next 10 years, based on projected levels of investment across the largest seven emerging markets (Brazil, China, India, Indonesia, Mexico, Russia and Thailand).
Among lines of business, engineering – with construction-all-risk premiums estimated to be US$22 billion – is expected to benefit the most.
In the operation phase, property premiums are estimated to reach US$19.4 billion, while premiums from renewable energy projects will be around US$ 9.7 billion.
There will also be increased demand for marine and liability insurance. Once again China, on course to be the world’s biggest insurance market by the mid-2030s, will be where most infrastructure-related insurance business is concentrated, accounting for 60 percent of the premiums over the coming decade.