Insurers’ role in being able to provide risk capital and “thus act as a shock absorber” should not be weakened but strengthened, according to Swiss Re Group CIO Guido Fürer.
Weighing in on the debate over long-term financing, Fürer told IPE: “Insurers are part of the value chain in lending, as they can offer size and long-term financing.”
Speaking in an interview on the sidelines of a Swiss Re round-table meeting on financial repression and the role of institutional investors in long-term financing, he argued that banks and insurers were “complementary partners” in the world of lending, as banks had the customer access and “necessary insight” into project risks such as infrastructure, while insurers had the long-term investment horizon to match their liabilities.
Last week, the Austrian finance minister Hans Jörg Schelling repeated criticism raised by the IMF on institutional investors competing with banks over financing and “distorting” the market.
However, at the Swiss Re conference, another panel member, former ECB president Jean Claude Trichet, warned against further increases in debt issuance.
He called on institutional investors, as well as regulators, to “bias equities” and increase exposure to the asset class.
“We have seen the dangers of piling up debt, and, therefore, it is important investors increase the share of equities in their portfolios,” he said.
Trichet said he was “surprised to still see a bias against equity and pro debt in many economies”.
He told IPE any bias towards equities should be a long-term perspective, as equity markets were overpriced.
“Thinking ahead, a higher equity exposure makes sense, and it would be safer than piling up new debt,” he said.
Fürer agreed that “equity is important”, as “it is the basis for any type of financing including debt”.
However, he pointed out that certain investors were better suited to taking on more equity investments than insurers, with long-term liabilities best mirrored by fixed income instruments.
Swiss Re itself invests about 7% of its $128bn (€94bn) portfolio in equities, which is “within the strategic range”, said Fürer.
To increase exposure to infrastructure financing, which, on average, makes up 1% of European insurers’ portfolios, Fürer would like to see a “market-consistent spread risk charge under Solvency II”.
Further, he called on all stakeholders to continue the dialogue to “allow a tradeable infrastructure debt asset class to emerge”.
To this end, he said, “we need to have best practices agreed between the public and private sector on bond documentation and disclosure requirements”.
Fürer added: “Currently, infrastructure projects are almost non-accessible for institutional investors. Private involvement in financing makes such projects more efficient.”
Furthermore, he stressed that a tradeable asset class would “attract a lot of private capital”.
”Policy risk is still the risk number one in infrastructure investment,” he said.
“A tradeable asset class is the best risk-mitigation strategy”.
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