China’s ambitious Belt & Road Initiative (BRI) – an attempt by President Xi Jinping to spur investment in land and maritime trade routes that strengthen ties across Asia, the Middle East, Africa and Europe – is set to offer the insurance industry significant investment opportunities, according to a report by Swiss Re.
This opportunity, Swiss Re says, is underscored by an infrastructure gap in China and other BRI countries estimated to reach $20 trillion by 2030.
Insurers are currently able to participate in BRI projects through both equity and debt financing and it’s predicted that additional financing tools such as securitisation will be made available to insurers and other institutional investors.
Swiss Re adds that, as of 2017, overseas insurers had only invested $67 billion, or 2.7% of total insurance assets. As this is far lower than the 15% regulatory limit, global insurers are reportedly missing out on a sizeable opportunity to invest in BRI projects.
Already in 2015, Chinese regulators relaxed the rules so that insurers could invest in infrastructure projects. While finding assets suitable for investment is a challenge, Swiss Re believes that insurers can still find attractive investment opportunities to diversify their portfolios.
Infrastructure risk is extremely complex, has a very long duration, and involves many policy risks. Thorough risk assessment is crucial and this is where Swiss Re believes the capabilities of global re/insurance companies are needed.
Getting infrastructure financing right is key in Swiss Re’s view. The BRI has huge financing needs and the private sector must play a bigger role in this regard. Multilateral Development Banks can help standardise project disclosure documentation and bundle infrastructure projects.
This then creates a tradable infrastructure asset class, reduces risk and unlocks the asset base of investors. Keeping risks in check and incentivising private sector involvement are crucial for the BRI’s success.