Specialty credit: insuring the future of infrastructure 

In policies and projects to support the energy transition, and the move toward a globally-connected, tech-focused future, one topic is coming up again and again: infrastructure. More specifically, the global infrastructure financing gap - the difference between the required infrastructure investments and the public, private and international resources made available to meet that need. In developing countries alone, the UN puts that figure at US $1-1. 5 trillion.[1]

Closing the gap, and doing so sustainably, will only become more important in the coming years. But the question is, how?

Financing is an essential piece of the puzzle for infrastructure project developers. However, for finance providers such as banks, risk on loans is increasing – particularly for projects in emerging countries, which typically face greater volatility or require long-term support. This is where insurance companies come in.

The benefit of insurance on a loan for infrastructure projects is threefold. Firstly, lenders can offer greater credit facilities at a lower cost and with less risk. Secondly, insurers are stable players that can provide the long-term commitment required. And finally, thanks to benefits one and two, insurance means that developers can multiply their impact. In other words, they can increase the number and scale of their infrastructure projects.  

In the Specialty Credit team at Allianz Trade, collaborating with our partner banks on infrastructure project financing is a major aspect of our work. The projects we support have important impact potential – they are extending and modernizing infrastructure, making systems more sustainable and more resilient. In today’s climate, the transactions we insure fall into two main categories:

We are currently involved in a project supporting the installation of fiber-optic cables in underserved parts of Europe. For this type of project, it can be difficult for project developers to incentivize private investment due to high costs or a small customer base. Our financial transaction insurance, balance sheet support and guarantees enabled banks to loan more at a lower price while reducing their risk, therefore facilitating funding. The ongoing project has huge promise – for example, it is projected that by 2025, nearly 100% of France will be fitted with fiber-optic cables.

Allianz Trade insures multiple renewable energy projects around the world. Projects we have supported include solar energy power plants in Chile, and wind power projects in Morocco and the UK. Naturally, we can underwrite transactions between companies and contractors, for instance against potential lack of payment. But additionally, we can insure the project against political risks. For instance, public authorities might attempt to impede a project by rescinding permits and leases. Allianz Trade can protect a lender against these eventualities, removing this hurdle to investment. 

We see this as only the beginning for our work in infrastructure. Looking ahead, we predict an influx of more private investors into this sector, where currently banks and governments make up most of the lenders, requiring transaction insurance. As growing numbers of projects emerge, Allianz Trade stands ready to support them with tailored solutions to suit the distinct needs of a wide array of projects.

Whether for infrastructure, exports, structured finance or more, specialty credit is not a one-size-fits-all solution. Our customized approach to each project is what sets our line of work apart – in short, what makes specialty credit special.

[1] https://developmentfinance.un.org/closing-the-infrastructure-gap