There has been an increasing amount of discussion about expanding the role which the Life and Pensions industry might play in rebuilding the economies of the developed world, amid concerns about public debt levels, stalling projects to reduce carbon emissions and a need to recapitalise social care and housing initiatives.

Back on 4th August, in a joint letter with Rishi Sunak to the asset management and insurance industries, Prime Minister Boris Johnson said that he saw no reason why UK pension schemes - whether they be of the Defined Contribution or Defined Benefit persuasion - should continue to skew their investment allocations towards public bonds. With a nod to the buyside leverage finance and direct lending industry, he also envisaged greater participation by long duration investors in UK entrepeneurial life.

"It's time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth and prosperity across our country," the open letter stated.

Presumably, this will be reflected in changes to regulation which have to date favoured liquidity above duration (DC schemes as a case in point typically invest in public securities at the rate of 80% of allocation), as mandarins cast envious eyes on the success of Canadian and Australian pension schemes which have been prominent in global infrastructure projects for a decade or more. Managers may be encouraged to invest in 'the right type' of assets - be these to support new businesses, infrastructure or green development, by the removal of charging limits in specific cases, suggested the PM.

More recently, Charlotte Clark, Director of Regulation at the Association of British Insurers, spoke of a need to ease the requirement that life insurance annuity funds under UK Matching Adjustment regulations, must invest exclusively in cash generating assets where cashflows are fixed: Having followed a strict definition of fixed cashflow generation as a prerequisite to investment in illiquid credit categories in the past, surely, she argued, a better test ought to centre around the level of predictability associated with such cashflows? That in itself might open up all sorts of possibilities for life insurers to invest in mortgages, loans (eg those involving pre-payment risks), or other assets which are highly forecastable - if not absolutely certain.

"It is about how you can invest and incentivise investment beyond the economic cycle that is the crucial part of the reform...We should be looking at higher discount rates or more in terms of the sorts of assets allowed...Some infrastructure assets have predictable returns that may not be fixed."

Change also appears to be afoot across the EU, Solvency 2 regulated area:  Last week, as part of its S2 Review process, the EU proposed the release of €120bn from the reserve accounts of insurers, to help repair the economies of its member nations and support further investment in climate-related investment. Subject to approval by member states, Brussels now plans to ease capital requirements for long term investing in areas like wind farms or other green projects. The volatility adjustment, which encourages reserving against short term market fluctuations, also looks set to be eased in order to free up capital for longer term projects.

Likewise, there are signs of a more accommodating approach to investment in large pools of securitised assets by insurers. For years this has been something of a bugbear in certain quarters, the suggestion being that large, pooled markets like RMBS might have been tarred with an unwanted brush following the global financial crisis, in which structured credit became a public fugitive. Earlier this month, industry body Insurance Europe called on the EU to further relax rules which could facilitate more widespread investment in real estate and other lending by insurers: "Capital requirements for securitisations remain too high, relative to the real risk and relative to the yield that can be earned,” it opined.

All in all, the narrative appears to be changing from one in which insurers must follow a strict series of criteria as they acquire assets, to one in which a broader group of assets might be looked at with just a touch more regulatory discretion. This feels like an area in which there could be some tangible developments in the coming months, as governing bodies seek to better deploy pools of available capital in the post-Covid world...