Sigma 3/2020

Power up: investing in infrastructure to drive sustainable growth in emerging markets

Sigma Webinar Series – Part 1

Exposure: Tropical Cyclone causing wide area damage and loss of attraction to island resort

Protection for the pure economic impact unrelated to physical damage

Your Panel of Speakers

Welcome & Introductions

Stephen Higginson Head Customer & Distribution ANZ, Swiss Re Corporate Solutions

Irina FanHead of Insurance Market Analysis, Swiss Re Institute

The global recession in 2020 will be deeper than the Global Financial Crisis

Note: t = 0 represents the outbreak of each crisis period, * analysis based on non-life and traditional life businessSource: Swiss Re Institute

• We expect global GDP to contract 4% this year - much deeper than the 1.8% contraction seen in the 2008-2009 Global Financial Crisis.

• Recovery will be protracted given the gradual exit from lockdown, changes in consumer behavior and weak initial economic resilience

• Interest rates will remain very low. “Financial repression" is on the rise with central banks capping yields to accommodate massive government borrowing

• Structural issues such as debt overhang and bankruptcies will though continue to linger for some time.

-6%

-4%

-2%

0%

2%

4%

6%

t=-3 t=-2 t=-1 t=0 t=1 t=2 t=3

World GDP

Global financial crisis (2009) COVID 19 outbreak (2020)

Infrastructure investment is essential for a sustainable recoveryToo little stimulus-led public infrastructure spending globally, but more to come…

…enables sustainable economic

growth

…positive multiplier effects on

output

Infrastructure investment….

Source: UBS, Swiss Re Institute

tax reliefother revenue

other expenditure

Unemployment insurance

Unemployment insurance

Business loans/grants

Business loans/grants

Public investment

Public investmentOther

Other

Job retention schemes

Direct cash payments

Healthcare

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2009 2020

Composition of fiscal stimulus(% global GDP)

…increases productivity

Drivers for infrastructure investment in emerging markets

Smart cities: China to invest USD 350 billion

in smart city projects by 2025

~70% of EM population will be

living in urban areas by 2050

1/3 of the energy investment will

be in the renewable

sources

Emerging markets will drive future infrastructure investment ………however, a substantial gap exists

23

4335

23

3 3 2

5

10

5

2

3 2 10

10

20

30

40

50

60

Advancedmarkets

Emergingmarkets

EmergingAsia

China Africa LatinAmerica

EmergingEurope

US

D t

rilli

on

Infrastructure investment gap (2021 - 2040)

Infrastructure investment as per current trend (2021 - 2040)

Source: Swiss Re Institute estimates, based on data from Global Infrastructure Hub, Oxford Economics

USD 2.2 trn(Emerging markets)

USD 1.7 trn(emerging

Asia)

Total infrastructure investment spending and gap (2021-2040)

USD3.3trn(Globally)

On an annual basis …

USD 1.2 trn(China)

Shift towards renewable energyEnergy

infrastructure: 34% share

Road infrastructure:

33%

A large part of future

investment in renewable will come from EM

Asia

Global new investment in renewable energy, 2008–2018 (USD billions)

Note: Figure does not include investment in hydropower projects larger than 50 MW.Source: Renewables 2019: Global Status Report, Renewable Energy Policy Networkfor the 21st Century, 2019

One third of the energy investment

will be in the renewable sources by

2040

Increased focus on sustainable and resilient infrastructure

8

Disruption to infrastructure costs

households and firms in low- and

middle-income countries at least USD

390 billion a year

Cost of climate proofing amounts to

around USD 41 billion annually, while

climate mitigation would cost around

USD 200 billion annually in Asia

during 2016-2030.

Infrastructure investment in emerging markets bears clear opportunities for long-term investors including insurers

environmen-tally and socially

responsible investing

annual investment

opportunity of USD 920 bn

attractive yields and regional & asset class

diversification

Lower barriers for long-term investors’ allocation to infrastructure

Support market-friendly frameworks in promoting standardisation in contract terms

Improve market structure and embed ESG

More private capital investment needed

Providing an overview of financial disclosure and reporting requirements on an initial and semi-annual basis

Promoting best-practice standards for infrastructure debt (loans and bonds) to harmonize contract terms across jurisdictions

Monitoring information on administrative responsibilities such as creditor decision-making, cash flow and collateral management

Policy recommendations: infra debt being an asset class*

*See also European Financial Service Roundtable policy recommendationsand contract terms template: http://www.efr.be/documents/news/117.1.%20Updated%20EFR%20paper%20on%20Infrastructure.pdf

USD 50+ billion insurance opportunityUSD 50 billion

in EM7 over the next decade

Engineering CAR and

Property are biggest winners

Opportunities both in the

construction and

operational phases

0 5 10 15 20 25

Engineering - Contractor's All Risk

Engineering - Delay in Start Up

Marine

Liability - Single Project General Liability

Liability - Single Project ProfessionalIndemnity

Property

Business Interruption

Con

stru

ctio

n P

hase

Ope

rati

onP

hase

Premiums related to the boom in infrastructure in EM7 over the next decade, USD bn

Source: Swiss Re Institute

Note: EM7 include: China, India, Brazil, Mexico, Russia, Indonesia and Turkey.

Key Takeaways

Emerging markets will invest an estimated USD 2.2 trillion on an annual basis, - 3.9% of annual GDP - in infrastructure over next 20 years

There will be strong investment in renewable energy, smart and resilient infrastructure. Emerging Asia will invest most – USD 1.7 trillion annually or 4.2% of GDP; China will account for 54% of emerging market spending

Infrastructure in emerging markets represents an annual USD 920 billion opportunity for institutional investors, including insurers. Infrastructure-related insurance premiums to exceed USD 50 billion over 10 years, most from engineering, property and energy

1

2

3

Thank you!

Contact usFollow us

Stephen HigginsonHead Customer & Distribution ANZStephen_Higginson@swissre.com(03) 9935 0001

Lisa MatthewsCustomer & Distribution Manager ANZLisa_Matthews@swissre.com(03) 9935 0009

Legal notice

©2017 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re.

The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation.