Christian Mumenthaler, the Group CEO of global reinsurance firm Swiss Re, has called for the development of a “standardised and tradable” global infrastructure asset class, into which firms such as his own could invest their long-term capital while helping to increase resilience.
In an article timed to coincide with the World Economic Forum meetings in Davos, Switzerland this week, Mumenthaler explains that there is a need for long-term investors, such as those in the insurance and reinsurance industry, to have more opportunity to back essential infrastructure projects in order for the world to benefit from “stronger, smarter infrastructure.”
Mumenthaler highlighted the need for infrastructure to become better able to withstand disasters, with many existing items of infrastructure needing to be retrofitted and new projects needing to be built to more resilient standards.
There is the need for capital to flow into resilient infrastructure, Mumenthaler said, as; “The funding gap for both revamping infrastructure and new projects – currently estimated at $50 trillion-$70 trillion through 2030 – continues to widen.”
Long-term investor capital is perhaps the best source of the funding needed to help finance resilient infrastructure projects, he explained.
Continuing to highlight; “Managing around $27 trillion-worth of assets globally, and with long-dated liabilities, the reinsurance industry is a natural fit.”
But investing in infrastructure is a long and complex process, with all projects deemed separate and no single instrument, index or asset class where reinsurers could put their capital to work.
“The first step to unlocking long-term investors’ funds is to introduce a standardised infrastructure asset class on a global scale,” Mumenthaler suggested, added that, “The European Financial Services Roundtable has put forward a template for documentation and disclosure, which could serve as a starting point for a shared public-private sector understanding and good market practice.”
Demonstrating its commitment to this cause, Mumenthaler said that Swiss Re is taking steps to try to help stimulate the development of the needed liquid infrastructure asset class.
He explained; “Swiss Re is therefore developing an infrastructure tradability indicator – a quantitative tool designed to help investors and policymakers assess the progress achieved and bring infrastructure debt another step closer to becoming a standardised and tradable asset class.
“Such an asset class would make the investment process simpler, giving long-term investors more confidence to invest and taking some of the financial load off governments’ shoulders.
Of course there are two motivations here for Swiss Re and any insurance or reinsurance company. There is a desire to put capital to work in enhancing the world’s resilience, but also a desire to find new asset classes that can enhance their investment returns in this lower yield world.
There is also the consideration that a more resilient world may need less insurance, and ultimately reinsurance, to take into account. But for companies such as Swiss Re, promoting resilience and finding a home for its assets that will put them to work much harder (with greater return) than the majority of asset classes today, would be a very attractive prospect.
