Will 2016 see insurers swoop in and invest heavily in European infrastructure to help prop up the region’s flagging economic growth?

In theory, we should see infrastructure investment by insurers in Europe ramp up this year after the European Commission tweaked the Solvency II regulation making it easier and cheaper for these institutions to invest in the asset class.

In early April the EC lowered capital requirements on insurance companies as part of an effort to spur investment in long-term infrastructure projects and help revive the European economy.

As of 2 April, risk charges for insurers’ unlisted equity shares in infrastructure projects such as energy pipelines, transport links and broadband networks were reduced to 30% from 49%. The charges for investment in infrastructure debt were also dropped by up to 40%.

Historically, so-called real assets come to prominence during volatile markets as investors, particularly of the institutional kind, flock to more stable or defensive sectors. The tweak to the regulation therefore comes at a welcome time, despite the potentially self-serving interests of policymakers.

The jury is still out on whether insurers will increase allocations to infrastructure, so estimating what impact the change will have on the European economy is problematic. Nevertheless, according to the World Bank, every 10% increase in infrastructure provision increases output by approximately 1% in the long term, although the impact varies by country.

The UK seems to be well-placed, with big name insurers already announcing their commitment to the sector. Aviva, Friends Life, Legal & General, Prudential, Scottish Widows and Standard Life are planning to work alongside the British government, regulators and other interested parties to deliver at least £25 billion of investment in UK infrastructure in the five years from 2013. French player Axa also announced a €10bn commitment to infrastructure debt over the same period. Other large European institutions like Allianz and Generali have infrastructure investments too.

But Europe undoubtedly needs a considerable boost when it comes to infrastructure, with total spend across the EU dropping to 2.7% of GDP. The three largest countries in the Eurozone – Germany, France and Italy – reduced their infrastructure spending by between 15% and 20% over the past decade. One can therefore understand the importance that the EC attaches to encouraging private sector participation in this arena.

As such, the EC would have welcomed a report by law firm Linklaters estimating that between 2014 and 2023 institutional investors may look to allocate as much as US$100bn to European infrastructure projects — a total of US$1trn.