Insurers shift infrastructure debt to relative value

European insurers are shifting infrastructure debt from a safe Bund replacement toward a relative-value allocation that increasingly includes sub-investment-grade assets, participants in an Insurance Asset Risk roundtable said.

Money is being reallocated to infrastructure from direct lending and real estate debt, according to the discussion.

For a general account, the constraint on new infrastructure debt is capital treatment as much as spread, Swiss Life CIO Matthias Vögeli said. "If I look at spreads and the pick-up versus the risk-free benchmark, it isn't always easy to justify the additional capital charges," he said. He added that regulators are intensely scrutinizing how insurers model capital charges, including the use of private or internal ratings, which sets the capital charge a sub-investment-grade infrastructure loan carries.

Ampega, the asset manager of Talanx Group, has committed more than €7.5 billion of Talanx and third-party money directly in the 12 years since it built a dedicated infrastructure debt team, Rouzbeh Amini said. The commitments are predominantly in infrastructure debt. It sources conservative investment-grade exposure itself and partners with external fund managers where transactions are more distant or more complex, he said.

Generali put infrastructure debt at around 25% of the group's private debt exposure, mainly in Europe and managed primarily through internal managers, chiefly Infranity. The firm is evaluating small opportunities outside the EU for diversification. Swiss Life holds around 10% in infrastructure including equity, focused on the lower-risk, core end of the market, Vögeli said.