Infrastructure assets have always required patient capital, while the business model of insurance companies is built on long-term liabilities and predictable cash flow generation. In theory, insurers can play a central role in financing such assets across Europe. In practice, it’s not so simple.

A growing but incomplete allocation

While insurers are expanding their allocations to infrastructure, their potential remains largely untapped. As Figure 1 shows, total investments in alternatives increased by 40% from 2018 to 2024, while allocations to infrastructure alternative assets more than tripled.

This growing allocation to alternative assets suggests that appetite exists, particularly given that traditional instruments are no longer providing the yields and diversification needed.

Two worlds, one missed connection

Infrastructure managers typically frame their projects through economic relevance or societal impact, and infrastructure financing needs are accelerating worldwide.

For European insurers seeking to improve their ROE, investment decisions are built around a prudential framework in which returns must be balanced against risks and capital constraints. Long-term investments are very attractive as they may improve asset-liability matching, although they can also introduce additional risks.

A valuable ‘loophole’?

Since 2016, Solvency II has required insurers to follow a risk-based logic for their capital requirements. Type 2 equities (e.g., unlisted equities) are subject to a 49% equity shock, meaning that insurers must hold 49% of invested capital as Solvency Capital Requirement. This hefty load discourages many from exploring alternatives.

However, Solvency II offers a carveout for “qualifying” infrastructure investments which could benefit from a reduced 30% capital charge because they are deemed to exhibit lower risk characteristics. To qualify as such, the investment must meet a set of eligibility criteria, key of them:

From an insurance prudential perspective, infrastructure is not just any asset labelled as such; it must provide services that are essential to society. This includes transport systems (such as toll roads), energy networks, or digital infrastructure - often linked to the green transition - and typically involves capital committed over very long periods. These services are generally supported by long‑term contracts and, quite often, by regulated frameworks, which is one of the reasons why they are particularly relevant for insurers.

The gap between infrastructure financing needs worldwide and the capital currently being deployed is growing, and governments are unable to fill it alone. From a Solvency II perspective, an important consideration is the geographical eligibility criteria, which permit qualifying infrastructure assets to be located outside the EEA. In particular, assets located in OECD countries are eligible, as these jurisdictions are assumed to have stable legal systems and predictable regulatory frameworks. This creates opportunities for insurers reporting under Solvency II to gain exposure to non-EU markets. It supports portfolio diversification and provides access to potentially higher returns, particularly in developing economies, while also offering opportunities to manage currency risk.

A perspective on the path forward

Given this favourable regulatory treatment of infrastructure investments, Solvency II has encouraged insurers to explore these opportunities as part of their strategic asset allocation. Although meeting Solvency II eligibility criteria can justify significantly lower capital charges for assets offering attractive yields, it does not eliminate the underlying business risks. This is particularly true for long-term investments, which often span decades and inherently carry substantial risks, especially when linked to large physical assets that may be exposed to economic cycles, regulatory and political changes, transition risks and technological advancements, and also when they are located outside the EEA. Their physical and illiquid nature can limit insurers’ ability to adjust exposure when strategic priorities evolve. In turn, this encourages alternative asset managers to structure infrastructure assets in a way that highlights their “qualifying” status under Solvency II, while maintaining robust governance and disciplined ongoing risk oversight throughout the life of the investment.

Well-structured infrastructure products that combine favourable capital treatment and are supported by robust risk management frameworks will always attract the interest of insurers seeking such opportunities.