Insurers could invest up to €1 billion in State-backed building projects such as roads and other infrastructure over the next five years, depending on their commercial soundness and potential returns, according to a new report.

The study, commissioned by industry body Insurance Ireland, states that the industry could deliver up to 3,000 new jobs under the right conditions, and play a role in tackling both the pensions and health funding crises that currently face the State. The report, Creating the Future for Insurance in Ireland, says talks between Government and investment managers, which explored the possibility of getting insurers to invest in infrastructure developments should be "revisited with a view to creating a suitable commercial asset structure".

Solvency criteria
"This initiative could lead to €1 billion investment in Irish infrastructural assets over a five-year period," the report states. Its author, Tony O'Riordain, head of Pricewaterhousecoopers' (PwC) life and actuarial practice, suggested that new rules governing how insurers measure their solvency could make it easier for the industry to back such projects. Regulation requires insurers to put aside a certain amount of capital – called a capital charge – to cover the risk associated with such projects. Mr O'Riordain explained that setting these charges at an appropriate level would make infrastructure investments attractive to the industry. Other factors that insurers would have to consider are individual projects' commercial soundness, the returns, yield and liquidity that they are likely to generate, he said.

The report suggests that such investments could be made in partnership with the Ireland Strategic Investment Fund, the State body that will invest up to €6.4 billion from the National Pensions Reserve Fund in suitable projects in the Republic.

Shortly after Insurance Ireland published the report, the Minister for Finance, Michael Noonan, told the organisation's annual lunch that he believed insurers could loan money to small and medium-sized businesses.

Credit instruments
"The banks will not be able to supply the credit we need for a functioning economy," he told the gathering. "I think that there is a role for the domestic insurance industry to get into this space and to come forward with credit instruments, especially for SMEs."