UPDATE 1-Aviva pledges $820 million for UK infrastructure projects

Thu Dec 19, 2013 6:33am EST

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By Chris Vellacott

LONDON Dec 19 (Reuters) - British insurance group Aviva has made its first commitment since joining five peers in pledging to spend billions more on UK infrastructure projects, lining up 500 million pounds ($820 million) for immediate investment.

Two weeks ago the UK government unveiled plans for the six insurers to invest 25 billion pounds over the next five years in transport and energy projects as part of a national infrastructure plan designed to help boost the economy.

Aviva said on Thursday that its commitment follows last month's deal on new European capital requirements for insurers - known as Solvency II - which had proved less burdensome than initially feared, freeing up more money to invest.

"As a direct consequence of the recent agreement on Solvency II, we now have the political and regulatory foundations to invest in the country's infrastructure," said Chief Executive Mark Wilson.

"The (UK) government recognises we cannot build on shifting sands and it is essential that the government, the regulators and the EU act together."

Other insurers have also hailed the commitments in the UK as the fruit of a victory over the original proposals for Solvency II which they said threatened to stifle investment and economic recovery.

Many big insurers are eager to invest in infrastructure because they offer long-term inflation beating regular returns from road tolls and rents which fit well with the companies long term liabilities on pension products.

However, they said early proposals under Solvency II would have hampered their ability to commit money to projects by forcing them to lock up more capital.

The insurance industry had argued that making insurers reduce risk by holding more capital in reserve, often in short-term government debt, was at odds with government policy to harness private capital for infrastructure projects.

"There is a mis-match between potential investment finance being skewed into short-term government debt while the same governments desperately need it to be channelled into projects to boost short-term growth and develop long-term productive capacity," the Association of British Insurers (ABI) said in a report earlier this year.

Tidjane Thiam, Group Chief Executive of British life insurer Prudential, said in November he had considered relocating the group's headquarters outside Europe because of Solvency II proposals.

Aviva said it already has 5 billion pounds invested in UK infrastructure including loans for developing schools, universities, hospitals, utilities, airports and railways.

"Aviva is contributing the building blocks of the UK's future, making an additional 500 million pounds available immediately to invest in the country's schools, hospitals and transport," Wilson said.

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