UK's BoE to scrutinise insurer investment in "idiosyncratic" infrastructure

LONDON, June 2 (Reuters) - The Bank of England (BoE (Shenzhen: 000725.SZ - news) ) will scrutinise whether insurers are taking on too much risk by investing in infrastructure projects which may not be suitable for traditional portfolio management, it said on Tuesday.

Insurers have been coming under pressure from policymakers to invest in economic growth through building new roads, bridges and telecoms networks, projects which can offer higher yields than government bonds.

Any suggestion that insurers should not invest in such projects could endanger a 315 billion euro ($346 billion) European Commission plan for loans to infrastructure and small businesses.

These infrastructure investments can be attractive to insurers, but present "idiosyncratic risks" that are not suitable for traditional portfolio level management alone, said Andrew Bulley, director of life insurance at the BoE's supervisory arm, the Prudential Regulation Authority (PRA).

New European Union insurer solvency rules that come into force next January will help the sector judge whether to invest in infrastructure, Bulley said in a speech in London.

He said the PRA was "neutral" on whether insurers should increase their exposure to the sector, but said: "We shall continue to review the evidence as the new regime beds down."

As banks rein in lending following the financial crisis, governments are turning to the vast pools of money held by insurers, hoping they can be put to work to boost economic growth.

Legal & General (LSE: LGEN.L - news) , for example, has allocated 1.5 billion pounds ($2.3 billion) to a British infrastructure fund and is seeking external financing to expand the fund to 15 billion pounds. ($1 = 0.6564 pounds) ($1 = 0.9111 euros) (Reporting by Huw Jones and Carolyn Cohn; editing by David Clarke (Toronto: CKI.TO - news) )