Sub-IG Infra Debt: Exploring Risk Spectrum for Insurers
Infrastructure debt has moved beyond toll roads to sectors like data centers and battery storage. For insurers, sub-IG infra debt can offer stability, yield and capital efficiency and can help achieve both financial and strategic objectives in today’s market.
Once dominated by monolithic assets like toll roads and power plants, the infrastructure market now spans everything from data centers to battery storage—driven by digital transformation, sustainability imperatives and global funding gaps. With governments facing budget and fiscal challenges, and banks unable to meet surging capital demand alone, private lenders are stepping in and reshaping how critical infrastructure is financed. For insurers, selective exposure to sub-investment grade (sub-IG) infra debt can help achieve both financial and strategic objectives in today’s market.
Infrastructure debt is not new to insurance investors. Many insurers have been investing for years, attracted to infrastructure debt’s asset-backed security, predictable cash flows and portfolio diversification. In many capital regimes, the asset class also benefits from preferential capital treatment versus corporate lending (qualifying criteria apply), enhancing returns on regulatory capital.
Historically, much of the focus for insurers has been on investment grade (IG) infrastructure debt to match long-term liabilities. However, there is growing recognition that select sub-IG opportunities can offer compelling risk-adjusted returns. With spreads remaining tight across public markets and, to a lesser extent, certain private markets, insurers are increasingly seeking ways to enhance portfolio yields without significant compromise on credit discipline. Sub-IG infrastructure debt stands out, offering yields that are comparable to core infrastructure equity, while still providing the downside protection inherent in real asset-backed debt.
