The Institute and Faculty of Actuaries (IFoA) is the latest body to publicise the role that insurers and pension funds can play as long-term investors in infrastructure investment.
"Debt financing of infrastructure appears to be an appropriate fit for annuities as it is long-term (12 years+ duration)," the IFoA said in a short paper. "Inexpensive debt financing levels mean infrastructure equity investments may complement a with-profits portfolio of listed equity," the paper added.
Examples of insurers investing in UK infrastructure projects include:
- Aviva funding the development of Inverness College campus in Scotland;
- Legal & General investing in several student accommodation schemes at UK universities;
- M&G (Prudential) providing funding for Alder Hey Children's Hospital in Merseyside; and
- Friends Life agreeing a loan facility with Drax Group underpinned by the UK government guarantee scheme.
In 2013, the UK Treasury with some fanfare announced The UK insurance growth action plan (InsuranceERM, 4 December 2013 UK insurers pledge £25bn to infrastructure). Under this, "Aviva, Friends Life, Legal & General, Prudential, Scottish Widows and Standard Life will work alongside partners with the aim of delivering at least £25bn of investment in UK infrastructure in the next five years."
The present paper notes that the IFoA, in collaboration with the Institute for Civil Engineers, has published a framework for analysing and managing project risk, Risk Analysis and Management for Projects (RAMP), with the aim of "promoting better decision-making and greater likelihood of success." This framework is already used by Crossrail – the company responsible for building a new £15bn railway in London - as its risk-management process.
RAMP highlights the need to consider the potential social and environmental risks of projects, such as pollution and flooding.