BDC

UK Insurance Firms Continue to Invest in Infrastructure

Two of the biggest life insurance firms in the UK have sealed investment deals in infrastructure as the sector continues to show its growing desire for physical assets.

Insurance firm Legal & General has announced that is is to pump £65 million into Newcastle Science Central, which is a £350 million science and technology park that will be constructed on a 24 acre site in the city centre.

Meanwhile, the Pension Insurance Corporation has said it will inject £100 million into debt secured on the new Thames Tideway Tunnel, or a ‘super sewer’, which is a project costing £4.2 billion and is expected to be complete in 2023.

These are the latest in a series of deals secured by insurance companies as they show a growing trend towards investing in bricks and mortar assets.

While infrastructure remains a small section of insurance firms’ overall operations, it is a sector that has seen rapid growth.

One of the attractions of physical assets is that they offer cash flow in the long term to match the extended liabilities of insurers.

This is crucial for firms such as PIC and Legal & General which specialise in pension products and annuity that can last for several decades.

Furthermore, because it is often illiquid, there are often better returns offered in infrastructure than those available on other long term assets like corporate bonds of government.

Black Rock’s Insurance Asset Management Team Managing Director, Patrick Liedtke, said that infrastructure debt ‘ticks all the boxes’ as it provides investment grade paper that is long dated and allows insurance firms to match their liabilities and assets.

He added that the companies are using it to replace some of the more classic papers that they would have otherwise held.

Earlier this year, Goldman Sachs Asset Management conducted a survey that found infrastructure equality and infrastructure debt are among insurers’ most popular asset clauses, with a significant majority intending to pledge more money into the assets than take money away.

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BDC 303 Apr 2023