Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

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Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Categorized | Insurance

UK life insurers can help boost infrastructure

Posted on November 21, 2016

As darkness fell one cold November evening in 1817, the citizens of Newcastle upon Tyne witnessed what must have seemed like a miracle — the city’s main streets were some of the first in the UK to be illuminated by gas, with the finance, and indeed management, provided by a local insurer, the Newcastle upon Tyne Fire Office.

UK life insurers and pension funds, which today manage nearly £3tn of assets, have been investing in the real economy for centuries. Insurers — with their need to match illiquid long term liabilities, such as annuities, with investments in corresponding long term illiquid assets — have long been attracted to investing in infrastructure. And in recent years persistently low interest rates have made infrastructure potentially even more attractive as insurers intensify the search for good returns for customers.

The appetite is certainly there. And so, it appears, is the demand. It is a rare point of agreement in post-referendum Britain that the country needs a new deal for greater infrastructure investment — whether in mega-projects such as extra airport capacity, further investment in schools, hospitals and medical centres, or investment in the renewables sector.

But insurers can only invest if the conditions are right. It is no good asking us, as stewards of our customers’ pensions and savings, to invest unless we can get an appropriate return for them. And at the moment a series of policy and regulatory own goals are stopping the UK from entering a new era of major infrastructure investment.

How have we reached such an impasse? First, the emerging regulatory environment does not support insurers’ critical role as long-term investors. Regulation has created perverse incentives for companies to become highly conservative, cautious and bureaucratic in where they invest, shifting from equity to sovereign debt and corporate bonds. We are being forced to invest in monochrome and not in technicolour. The excessively rigid new Europe-wide insurance capital regime, “Solvency II”, is a case in point. And the significant flow of investment into so-called lower risk assets potentially creates an asset bubble — and bubbles inevitably burst.

Moreover, overseas investors have greater freedom to invest in the UK than we do. Imagine I want to make a $100m investment in a 20-year bond backing a wind farm. Canadian regulators, for example, would make a Canadian insurance company hold additional capital of $3m. But to make the same investment under the Solvency II rules a British company would need to hold capital of above $10m. Where is the sense in that — especially when, if the conditions were right, UK insurers could make the investment, contribute to Britain’s infrastructure and British pensioners could enjoy the investment returns?

Governments have tried to encourage private sector investment in infrastructure. But if the projects are not there and take too long, companies will not come on board. For example, the Roskill Commission was set up nearly half a century ago to look at a third airport for London. We have only just made a decision on a third runway at Heathrow and not even broken soil yet. In contrast, Beijing’s second international airport is scheduled for completion in June 2019, only six years after approval was granted.

Here are two ways to encourage insurers to invest in infrastructure. First, lighten the regulatory burden that unduly limits how insurers invest and establish a principles-based regime that leaves greater room for the exercise of judgment and allows for well-managed risk taking. Second, government must be more consistent in how it structures the finance for major infrastructure projects — for example, by taking on unusual planning or unproven technology risks. These are simple remedies to a longstanding problem, but they could generate a great dividend for the UK.

The writer is group chief executive of Aviva