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Munich Re
Private financing of infrastructure
projects – Opportunities for the
insurance industry
In order to “slim down” their public
sectors, more and more governments
around the world are taking
the decision to withdraw from fields
of activity that do not necessarily
have to be conducted by the
state. Behind the trend towards
privatization as a positive solution
in this connection lies the
perception that the state can
control public expenditure better
by concentrating on its core
responsibilities and that many
tasks can be dealt with more
efficiently by the private sector.
Many countries, for instance,
are pressing ahead with the
construction, financing and
operation of major traffic infrastructure
projects on a private
basis. Elsewhere the responsibility
for operating hospitals, previously
in the hands of public institutions
or the church, is being handed
over to private investors, and these
are also being entrusted with the
financing of new clinics.
Particularly in the “emerging”
economies, large projects in the
field of energy and communications
technology are increasingly being
realized and operated by the private
sector. The state restricts itself to
setting the parameters (e.g. through
general development plans), granting
concessions and exercising
legal supervision: in other words,
steering and controlling.
As private investors have to
consider the long-term return on
their investment, they rely in
such cases on the international
insurance industry to carry the
typical insurance risks so that their
liability remains restricted to the
entrepreneurial risk. Insurers often
play a significant role as the
providers of capital as well.
Munich Re experts provide cedants and
their clients worldwide with advice and
support for major projects, such as before
and during the construction of the Petronas
Towers in Kuala Lumpur (Malaysia), currently
the tallest office buildings in the world.
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But even if other institutions take
on the long-term financing, the
constructors and operators require
comprehensive and continuous
insurance cover to safeguard
loans both in the construction
phase and during the loan
redemption period, which often
extends far into the operating
phase of major projects.
Such projects in preparation or
under construction are the new
Athens and Hong Kong airports,
the underground railways in Los
Angeles and Taipei, the multitransport
link over the Öresund
between Copenhagen and Malmö,
the Korean high-speed railway
system and the Three Gorges
hydroelectric power station project
in the People’s Republic of China.
Domestic and foreign insurance
companies, supported by
financially strong reinsurers,
assume the risk of costs arising
from property damage, financial
losses and liability claims.
As the world’s largest reinsurer in
the engineering classes of
insurance, the Munich Re is always
particularly in demand when it
comes to covering these risks: it
has the most extensive risk and
claims statistics in the international
insurance industry, statistics that
are updated and evaluated in line
with the latest scientific methods
and using the most modern
facilities. This gives it a significant
competitive edge in risk analysis
and assessment, loss inspection
and claims settlement. Its experts,
not least its more than 100
engineers and scientists of all
disciplines, can be contacted
swiftly through Munich Re’s dense
network of offices and subsidiaries
all over the world. Thanks to its
expertise and outstanding financial
strength, the Munich Re Group can
offer an exceptionally large amount
of reinsurance capacity for
covering these risks.