Infrastructure Investments Help Power Clients' Annuities

Jonathan Gray, the president of Blackstone, said one major driver is investors' concerns about inflation and an increased appreciation for inflation-protected hard assets.

"And, in general, I would say, our customers are under-allocated to infrastructure and want to hold more here," Gray said.

Biden's SOTU Address

Biden devoted much of his State of the Union address to talking about the future impact of the two new infrastructure funding laws.

"To maintain the strongest economy in the world, we also need the best infrastructure in the world, then we fell to 13th," Biden said.

The new infrastructure law has already helped fund about 20,000 projects, and the Inflation Reduction Act will promote investments in clean energy, he added.

Chanda's Views

Chanda said KPMG is seeing life insurers show strong interest in infrastructure projects, and especially in projects with social and environmental benefits, such as projects that help reduce countries' reliance on coal and gasoline and increase use of renewable sources of energy, such as solar power and windmills.

State insurance regulators have complicated rules for counting assets in life insurers' capital totals.

Regulators typically classify federal government bonds and high-grade corporate bonds as the safest investments and let life insurers include the full value of those assets in capital calculations.

Regulators require insurers to apply "capital risk charges," or reductions in asset value, when including riskier assets in capital calculations.

Chanda said that, when life insurers invest in infrastructure projects, the following concerns could come up:

• The admissibility of the investments.
• The capital risk charges to be imposed on the investments.
• The duration of the investments, and whether the durations match the durations of an insurer's own liabilities.
• Limits on how much of an insurer's assets can go into any one investment.

 (Image: Adobe Stock)