What You Need to Know
- The Biden proposal calls for $2 trillion in spending over the next decade.
- Life insurers invested about $60 billion in Great Recession-era infrastructure bonds.
- The American Council of Life Insurers said supporting infrastructure is key to strengthening the economy.
Life insurers are trying to figure out how they might fit into President Joe Biden’s new $2 trillion American Jobs Plan infrastructure proposal.
Biden wants the country to invest about 1% of gross domestic product per year in efforts to fix highways; rebuild bridges; upgrade ports, airports and transit systems; protect communities against flooding, windstorms and wildfires; strengthen the electric grid; expand access to high-speed internet service; increase energy efficiency; and support research and development programs.
Life insurers would love to find profitable new ways to invest in infrastructure, through the American Jobs Plan program or other new programs, according to Eric Richards, a partner at O’Melveny and co-chair of the law firm’s corporate department.
“Infrastructure assets are ideal,” Richards said.
Life insurers need long-lasting, steady, secure payment streams, and infrastructure projects can provide those, Richards said.
In theory, any new infrastructure bonds could pay higher rates than many other high-grade investments, at a time when life insurers are hungry for ways to increase yields on the investment portfolios they use to support life and annuity obligations.
Financing Details Are Missing
One challenge, Richards said, is that investors have no way to know now what kinds of investment opportunities the American Jobs Plan proposal might create.
“There’s no legislation that’s been drafted yet,” Richards said.
The Biden administration provided detailed descriptions of what it wants the infrastructure program to accomplish, but no details about opportunities for private-sector investors to help with financing, or about any incentives or guarantees that might be available to investors, Richards said.
The U.S. Department of Transportation would obviously have an important role in implementation, but the scope of the current outline is so broad that it looks as if most other major federal agencies also would play a role, Richards said.
“This story is going to play out over the next several months,” Richards said.
Life Insurers and Infrastructure
U.S. insurers already have more than $1 trillion invested infrastructure-related bonds, according to a 2017 insurance industry infrastructure report released by the Center for Insurance Policy and Research (CPR).
Congress created a big infrastructure bond program, the Build America Bonds program, in 2009, in response to the 2007-2009 Great Recession, to help fund “shovel ready” projects that could create many jobs.
Life insurers bought about $60 billion of the $182 billion in bonds issued with support from that program, Dirk Kempthorne told the National Association of Insurance Commissioners (NAIC) Valuation of Securities Task Force in 2016.
Kempthorne, who was the president of the ACLI in 2016, told the task force members that, as of 2016, all of the Build America Bond issuers had made all of required payments.
Life insurer investments made through the program helped pay for many projects. These include a tower used to house a cancer hospital at Ohio State University, a University of California cancer hospital in the San Francisco Bay area, and the construction of a rail line extension that will connect Dulles International Airport with a train station in East Falls Church, Virginia.
Kempthorne asked the NAIC for help with clearing regulatory hurdles, such as development of infrastructure bond valuation requirements, that might affect insurer investments in state infrastructure projects.