Infrastructure insurance premiums to pass $50B in emerging markets, Swiss Re says

June 17, 2020.

said on Wednesday that it expects premiums related to future infrastructure projects in emerging markets to be worth more than $50 billion over the next decade, a figure that it attributes to items such as property, engineering and energy.

The reinsurance giant described the figure as “a total premium opportunity” and noted that insurers can capitalize on it.

“Insurers can also underwrite the risks inherent in the construction and operation phases of infrastructure projects,” Swiss Re said.

The reinsurer said the premiums figure is based on anticipated future projects in seven large emerging markets: China, Brazil, India, Mexico, Russia, Indonesia and Thailand. The Chinese insurance market will become the largest globally by the mid-2030s, Swiss Re said, projecting that it will represent 60% of infrastructure-related premiums.

Swiss Re said that engineering will comprise the largest segment of projected infrastructure-related premiums, coming in at $22 billion. The company said that property will be the second largest segment at $19.4 billion, while premiums tied to renewable energy will be third, coming in at approximately $9.7 billion.

The reinsurer’s findings are part of a broader study into emerging-markets infrastructure as an investment category. Swiss Re said that it predicts emerging markets will invest $2.2 trillion annually, or 3.9% of their gross domestic product, into infrastructure over the next 20 years. The majority of the annual investment value, $1.7 trillion, is expected to come from emerging Asian countries, Swiss Re added, noting that this will be 4.2% of GDP.

“In the coming years, Asia will invest more in infrastructure than anywhere else in the world, with the region’s emerging economies accounting for more than a third of associated spend,” Russell Higginbotham, the company’s CEO for its Asian reinsurance division, said in a statement. “Critically, infrastructure will enable sustainable growth by fostering improved productivity; while rising incomes and a continuing trend of urbanization will mean that the composition of infrastructure needs will also evolve.”

China will account for $1.2 trillion in annual infrastructure investing, Swiss Re said, or 54% of emerging-markets investing and 35% of global investing. 

Swiss Re predicts the projects will translate to a $920 billion annual investment opportunity for institutional investors, including insurers. Additionally, the company cites energy, in particular renewable energy, and health care as areas likely to get investments.

Jérôme Jean Haegeli, Swiss Re's group chief economist, said that infrastructure spending could be used to bolster economies hit by the current downturn.

“Spending on infrastructure could be one of the ways to kick-start parts of the economy after the COVID-19 pandemic and help drive strong and sustainable growth over the next decade,” he said in a statement. “Most infrastructure spending will be in emerging Asia, which we also expect to be the engine of global economic growth.“

The reinsurer also argues that slowing growth should serve as a reason to invest. The company predicts that over the next decade emerging markets’ economies will grow at roughly 4.4% annually, in contrast to the 2010-19 annual average of 5.5%.

“In the aftermath of the pandemic, the global economy will face headwinds from impaired supply chains and production capacities, higher unemployment, bankruptcies and higher debt burdens,” Swiss Re said. “And, given the already-weak resilience of many economies before the onset of the crisis, global growth will return to subdued levels only. Against this backdrop, emerging markets need to become more resilient by improving productivity and increasing investment in infrastructure, which in turn can reduce businesses’ operating costs and create an enabling environment for new capital formation and output growth.”