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Infrastructure Investments

Last Updated: 10/14/2021

Issue: Infrastructure is the permanent facilities and structures that a society requires to facilitate the orderly operation of its economy.  There is a huge funding gap between what is required to support infrastructure going forward and what is available in the U.S. as well as all over the world.  In the United States, the funding gap is estimated at about $2.1 trillion over the ten years from 2016-2015, at the same time, simply updating and maintain existing infrastructure networks and systems would require another $1 trillion.[1]  Traditionally, municipal bonds and private activity bonds (PABs) have been the primary source of financing infrastructure.  Besides, opportunities to invest in infrastructure also includes private debt, public and private equity, and direct investment. 

Infrastructure projects are asset-intensive and generate predictable and stable cash flows over the long term, which provide a natural match for insurers’ liabilities-driven investment strategies and prevent economic capital erosion arising from duration mismatch particularly in a low interest rate environment.  Since infrastructure investment can offer portfolio diversification, low-risk and competitive returns over long timeline, institutional investors, such as insurance companies, pension funds, etc., are increasingly seeing this as a viable and distinct asset class.  However, the resilient and credit performance of infrastructure has not been reflected in the standard approaches for the credit risk in most regulatory frameworks.

Background: Insurance companies have long been a significant presence in infrastructure financing. As of Dec. 31, 2015, U.S. insurers hold approximately $222 billion in U.S. securities, $197 billion in general obligation bonds, $295 billion of municipal revenue bonds, and $779 billion of corporate bonds in the following infrastructure sectors: utilities; natural resources; communications; transportation; social infrastructure and power generation.  New bank regulations are likely to cause banks to significantly decrease infrastructure lending while government infrastructure funding is facing significant political headwinds, encouraging a more efficient allocation of capital by shifting the supply of long-term funding ton insurers.  However, we have also heard that there are impediments (i.e. regulatory, procedural, etc.) in the insurance industry from being more active in this asset class. 

Status: In 2017, the NAIC Securities Valuation Office (SVO) worked with the American Council of Life Insurers (ACLI) to create transparency standards, analytical criteria, and methodology for power generation and renewable energy projects. It also continues to be involved in several related initiatives. Additionally, the NAIC Valuation of Securities (E) Task Force evaluates potential impediments to insurer investment in infrastructure.

In 2019, the NAIC’s Center for Insurance Policy and Research (CIPR) and Capital Markets Bureau are collaborating on an infrastructure study for the insurance industry.  The purpose of the study is to develop a better understanding of infrastructure investments and the dynamics of that market as it relates to the U.S. insurance industry as an institutional investor. A request for information (PDF) was released at the Summer 2019 National Meeting to gather information and input from market participants on key topics such as the definition of infrastructure, the market size, the historical credit performance of infrastructure investments, and the treatment of infrastructure investments by state insurance regulators. The study covers two key overarching topics: infrastructure investment as an asset class and the insurance industry’s participation in the infrastructure market, including barriers, opportunities, and regulatory considerations. CIPR and NAIC’S Capital Market Bureau co-hosted a webinar in part with S&P Global Ratings in February 2021 “The U.S. Insurance Industry and Infrastructure Investment: Infrastructure Investment as An Asset Class Through 2019 and Understanding the Impact of 2020 and Beyond”, to update the infrastructure study and provide insights from S&P on the impact of 2020 COVID-19 pandemic to the infrastructure investment, 2021 and beyond. The definition (PDF) part of this study has been released in March, 2020; the investment characteristics, market size, and credit performance, NAIC regulatory treatment, insurance industry exposure parts were released in the fall of 2021; the rest last components, climate resiliency of infrastructure projects is expected to be released in the spring of 2022.

Related material updates:

World Bank: Credit Risk Dynamics of infrastructure Investment


[1] TIAA white paper “Building the Roads to the Future”: