Insurer Prudential has committed to fund a £1bn (€1.2bn) tidal power plant, one of hundreds of projects part of the UK government’s national infrastructure plan (NIP).
Investing through its wholly-owned asset management arm M&G Investments, the insurer will act as a cornerstone investor in a project looking to build a hydro-power station in Swansea, South Wales.
The completed project is estimated to cost £1bn and aims to become part of a network of tidal plants that could produce 8% of the UK’s electricity requirements.
It is expected to open in 2018, with construction scheduled to begin early next year.
Commitments from Prudential form part of the UK Government’s agreement with six of the largest insurer’s to spend £25bn on UK infrastructure.
The agreement between HM Treasury and the insurers was made after clarifications of Solvency II regulations made the allocation to domestic infrastructure possible, the Government said at the time.
Much of the £25bn was expected to be come from insurers’ annuity books, as the firms formed a significant section of the UK individual annuity market.
Prudential’s move may alleviate concerns insurers would not be able to stand by their commitment.
Three months after the £25bn agreement was announced, Chancellor George Osborne launched radical overhaul of the defined contribution (DC) at-retirement market, removing compulsory annuitisation for majority of savers.
The change resulted in more than £1bn wiped off the value of insurers listed on UK stock markets, heavily reliant on the individual annuity business.
The £12bn a year individual annuities market was expected to take a significant hit in value with savers now allowed fully withdraw savings as cash, or electing to use income-drawdown.
However, alongside Prudential’s investment, Legal & General (L&G) also affirmed its commitment to the plan despite the hit and long-term impact on its individual annuities book.
Michael Abramson, head strategic business for bulk annuities at L&G, said the insurer would use its bulk annuity arm to back the commitment as it expected its overall annuity book to grow.
The number of insurers using bulk annuity business from defined benefit (DB) schemes to match falling individual writings is expected to grow after the Budget reforms.
Legal & General today announced a £129m buy-in with the Unaic Pension Scheme, part of the Unilever group.