Re/insurers can play a vital role in supporting infrastructure development in Africa through risk mitigation solutions and by acting as significant institutional investors, according to a recent report by the African Insurance Organisation (AIO).
The report highlights Africa’s significant infrastructure deficit. The continent needs $495.6 billion annually until 2030 to meet its Sustainable Development Goals (SDGs), or $86.7 billion annually to accelerate its Agenda 2063 structural transformation, according to estimates by the African Development Bank (AfDB). The financing gap for these targets amounts to 81% of the total need.
Risk is present throughout the entire lifecycle and value chain of infrastructure, increasing costs and potentially deterring investment.
However, the AIO report argues that the insurance sector can help attract private sector capital and other financing flows by providing risk expertise and a broad suite of secure risk mitigation solutions.
“The insurance sector is highly professional, well-regulated and well-capitalised, and is therefore an excellent risk mitigation partner for infrastructure,” AIO stated.
Re/insurers can also be a strong investment match for sustainable infrastructure projects, which are capital-intensive and typically generate predictable, stable cash flows over the long term.
Additionally, re/insurers with long-term liabilities—particularly life insurance and annuity providers—focus on sustainable, long-term assets to match those liabilities.
Infrastructure investments also have a low correlation with other asset classes and tend to offer relatively high recovery values in the event of payment arrears.
Insurance liabilities backed by infrastructure-linked instruments may also benefit from higher discount rates due to the illiquidity of these instruments—potentially offering higher returns compared to more liquid assets like government bonds.
Whilst infrastructure investment allocations are predominantly low–the median global insurance market asset allocation for infrastructure investments was just 1% in 2023–industry surveys indicate growing interest in alternative asset classes.
