Infrastructure equity for insurers: Capital efficiency, diversification, resilience

This piece was co-written by Anil Shenoy, FFA (Head of Insurance, UK & Ireland, IFM Investors) and Chris Pritchard, FIA (Principal and Co-head of Insurance Investment, Barnett Waddingham).

With traditional equity-bond diversification under strain – and global equity markets looking increasingly concentrated – is now the time for insurers to consider infrastructure equity?

Infrastructure equity: What’s the opportunity for insurers¹?

What do we mean by ‘infrastructure equity²?’

As an asset class, infrastructure equity is far from homogeneous. ‘Core’ strategies invest in the assets that underpin everyday life – from transport networks and utilities to renewable power. 

^{Caption: This animation shows that core infrastructure assets are generally capital-intensive, long-lived, and essential to society, while also typically enjoying resilient demand across market cycles, a durable competitive advantage, and high barriers to entry.}

But infrastructure equity can also span higher-return strategies in areas that may be less regulated or more market-driven, such as emerging digital platforms. These ‘core plus’ strategies are higher up the risk curve. 

How is infrastructure equity classified under Solvency UK/Solvency II?

Since the introduction of Solvency II in January 2016, several amendments have been made to the capital treatment of equities.

In June 2017, an amendment reduced the capital charge applied to two categories of infrastructure equity: 

• Qualifying Infrastructure Equities (QIE)

• Qualifying Infrastructure Corporate Equities (QICE)

Instead of being treated as generic Type 1 or Type 2 equities – with a capital charge of 39% and 49% respectively  – qualifying infrastructure could now benefit from lower charges of 30% (QIE) and 36% (QICE). 

Certain criteria must be met for infrastructure equity to be classified as either a QIE or a QICE investment – for example, both the infrastructure asset and the operating entity must be located in the European Economic Area (EEA) or the Organisation for Economic Co-operation and Development (OECD). But for insurers able to access qualifying strategies, this treatment can significantly enhance the capital efficiency of allocating to infrastructure equity. 

What are the potential benefits for insurers?

At the core end of the spectrum in particular, infrastructure assets often operate under regulated or contractual frameworks, generating predictable and often inflation-linked revenues. 

For insurers, core infrastructure can:	More generally, core infrastrucutre has:
Provide a potential hedge against inflation	Historically helped mitigate downside risk
Potentially deliver returns with less volatility and downside protection	Provided portfolio diversification4
Support liability matching
Deliver steady yields

To return once more to Solvency II, the lower capital charge applied to infrastructure equity also represents an opportunity, insofar as it may enhance an insurer’s investment portfolio from the perspective of overall return on capital. For 2025, Barnett Waddingham’s long-term capital market assumptions for Type 1 equities ranged from 7.5-8.5% per annum⁵. By comparison, an infrastructure equity fund focused on core infrastructure might be expected to deliver returns of 8-12% per annum⁶. In other words, the expected return per unit of solvency capital is higher for infrastructure equity than for traditional listed equities. 

	Expected returns per annum
Forecast for Type 1 equities	7.5 - 8.5%
Forecast for core infrastucture equity fund	8 - 12%

Source: IFM Investors and Barnett Waddingham. 

We believe this – and the benefits listed earlier in this section – make infrastructure equity an attractive investment, complementary to global equities. At a time when global indices look increasingly concentrated towards US mega-cap stocks, infrastructure equity may provide valuable diversification.

Portfolio construction: How should insurers incorporate infrastructure equity?

What might allocating to infrastructure equity look like in practice?

Below, we consider the case for including infrastructure equity in a Property and Casualty (P&C) insurer’s portfolio, as well as a large UK with-profits fund.

Example P&C insurer portfolio

Many P&C insurers have exposure to illiquid assets, such as private credit or property. In this context, allocating to infrastructure equity could provide an additional source of returns and diversification, potentially without compromising on risk, capital metrics, or liquidity constraints. 

In Chart 1, we demonstrate this with two portfolios: the first excludes infrastructure equity, the second includes a 7.5% allocation.

Chart 1 - Including infrastructure equity in a P&C insurer portfolio

^{Source: Barnett Waddingham. For illustrative purposes only.}

Example with-profits fund portfolio

Similarly, with-profits funds are increasingly considering alternative asset classes to enhance policyholder outcomes. Chart 2 shows two portfolios for a typical medium-sized with-profits fund: the first excludes infrastructure equity, the second makes a 7.5% allocation. 

As with the P&C portfolio, allocating to infrastructure equity provides a new source of returns; it also potentially reduces risk and capital metrics. 

Chart 2 – Including infrastructure equity in a with-profits fund portfolio  

^{Source: Barnett Waddingham. For illustrative purposes only.}

Does investing via a closed- or open-ended fund make a difference?

Investors can access infrastructure equity through both open-ended and closed-ended fund structures. Whichever option an investor chooses, selecting the right manager is crucial.

1

Close-ended funds

Close-ended funds

Historically the most common way to access infrastructure equity, closed-ended funds typically raise capital for a fixed period, invest this capital into a portfolio of underlying assets, and then return capital to investors at the end of the fund’s life.

Advantages	Drawbacks
Allows managers to take a long-term view and fully deploy committed capital	'Blind pool risk' - investors commit capital before knowing what the fund will invest in
Staged capital deployment allows managers to invest as opportunities arise	Secondary liquidity is limited7
Clear divestment strategy, with capital realised and distributed at fund maturity	Investors must usually wait until fund maturity for exit
	Exposure takes time - capital deployment doesn't happen straight away

2

Open-ended funds

2

An increasingly popular way to access infrastructure equity, open-ended funds usually invest in an established portfolio of assets, giving investors immediate exposure.

For insurers, we believe open-ended funds are often the better fit. They allow allocations to be adjusted over time, while providing long-term exposure that aligns with liability profiles.

Advantages	Drawbacks
No predefined end date, meaning ongoing exposure	The fund may offer some liquidity, but its underlying assets remain illiquid
Exposure is immediate – capital deployment happens at the point of investment	Liquidity buffers can dilute overall returns or shift the portfolio’s investment strategy
Some liquidity, meaning investors can adjust their allocation over time	In stressed market conditions, gating may be deployed
No blind pool risk – assets are in place at the point of investment

For insurers, we believe investing in infrastructure equity via an open-ended fund has the potential to enhance portfolio resilience, improve capital efficiency, and provide the flexibility to scale allocations long term.

Conclusion: What’s next for infrastructure equity? 

In this article, we’ve outlined why we believe now is the right time to invest in infrastructure equity, but looking further ahead, the asset class looks set to benefit from a number of global megatrends⁸. From decarbonisation and electrification to digital connectivity and circular-economy solutions, these trends point to a sustained opportunity, reinforcing infrastructure equity’s role as a strategic, forward-looking allocation for insurers. 

This piece was developed in partnership with Barnett Waddingham. 

^Footnotes:

^{1 Investments in infrastructure are subject to various risks including regulatory risk and market risk, which are outlined in further detail on the “Important Disclosures” page.  Prior to making an investment in any infrastructure strategy, investors should refer to the offering documents for a complete discussion of risks.
2 This article refers to private markets infrastructure (i.e. investments in infrastructure assets that are made through private (non-listed) ownership structures).
3 Type 1 equity is comprised of non-OECD listed equities, unlisted equities, private equity, commodities, and all other assets where look through is unavailable. Type 2 equity constitutes equities listed in a regulated EEA or OECD market.
4 Given there has historically been little correlation between infrastructure equity and more traditional asset classes, like equities/bonds
5 Source: Barnett Wadingham. Expected market returns are provided gross. 
6 Source: IFM Investors. Expected market returns are provided gross.
7 Although the secondary market is expanding.  
8 Megatrends: building a sustainable investment portfolio - Briefings | Barnett Waddingham}

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^{An infrastructure investment is subject to certain risks including but not limited to: the burdens of ownership of infrastructure; local, national and international economic conditions; the supply and demand for services from and access to infrastructure; the financial condition of users and suppliers of infrastructure assets; changes in interest rates and the availability of funds which may render the purchase, sale or refinancing of infrastructure assets difficult or impractical; changes in environmental and planning laws and regulations, and other governmental rules; environmental claims arising in respect of infrastructure acquired with undisclosed or unknown environmental problems or as to which inadequate reserves have been established; changes in energy prices; changes in fiscal and monetary policies; negative economic developments that depress travel; uninsured casualties; force majeure acts, terrorist events, under insured or uninsurable losses; and other factors beyond reasonable control. IFM-07NOV2025-4955226}