Feds encouraging P&C insurers to invest in public infrastructure

Following up on an initiative in October 2025 to make it easier for life insurers to invest in Canadian domestic infrastructure projects, Canada’s solvency regulator has now applied capital requirement reductions to property and casualty insurers as well.

The Office of the Superintendent of Financial Institutions (OSFI) sent a letter to Canadian P&C insurers Feb. 24 announcing the regulator is “reducing capital requirements for domestic infrastructure debt.”

OSFI’s amendment to its Capital Adequacy Guidelines means P&C insurers don’t have to park as much capital to ensure they can absorb potential losses from their public infrastructure investment risks.

“This measure forms part of a broader OSFI strategy of ensuring regulatory efficiency to better enable financial institutions to take risks to grow the Canadian economy,” as Bill (William) Gilliland, a partner at Dentons, explains when OSFI applied the same incentives to Canada’s life insurers.

Under OSFI’s revised guidelines, P&C insurers’ domestic infrastructure investments will see the following reductions in credit risk factors for unrated long-term infrastructure debt:

• from 6% to 3% for remaining terms to maturity of one year or less
• from 8% to 4% for remaining terms to maturity greater than one year up to and including five years
• from 10% to 5% for remaining terms to maturity greater than five years
• for unrated short-term infrastructure debt, from 6% to 3% for remaining terms to maturity of one year or less

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Public infrastructure projects eligible for the credit include oil and gas pipelines, pumping stations, oil and gas storage tanks, power plants, transmission and distribution, hydrogen production facilities, energy storage, battery storage, carbon capture, information technology, data centres, ports, terminals and rail and air infrastructure, water supply, waste disposal, agriculture, flood protection, healthcare, housing and education.

“An insurance company may only make these investments if the infrastructure entity or its assets involve a public body, including the government, Indigenous councils, regulatory bodies, international treaty-based organizations or non-profits where a public body appoints its board members,” Gilliland notes in his online post about the life insurance capital credits.

“An infrastructure asset is considered to ‘involve’ a public body if the body either owns at least 10% of the asset, buys most of its output, leases most of it, guarantees its revenue, sets its prices or controls its access or use.”

Capital efficiency is one benefit of expanding the incentives to P&C insurers, as OSFI states. In other words, lower capital requirements to protect against potential losses means less capital will be “locked up” in these investments, meaning an improved return on equity.

Second, infrastructure investment offers P&C insurers the ability to diversify their holdings beyond investing in corporate bonds and equities.

Also, infrastructure debt typically has long maturities and stable cash flows, which is a good match-up for long-term insurance liabilities — although that’s more of a benefit for life insurers. Since P&C insurance contracts are shorter, P&C insurers are more likely to need access to capital over the short term than life insurers.

OSFI’s announcement comes at a time when the Canadian federal government has promised to build more housing units. The Liberal government came to power in April 2025 on a promise to “double the pace of Canadian construction to almost 500,000 new homes a year.”

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Sources in the Canadian P&C industry have previously told Canadian Underwriter that housing infrastructure development will typically require investments in other public infrastructure as well.

For example, Mike Brown, head of construction lines at Zurich in Canada, sees spin-off business and underwriting opportunities from the planned increase in construction projects.

“It’s one of those simple equations,” says Brown. “If you want to build 100,000 new houses, you’ve got you work out how many kids you have, because you will need schools. We’re going to need a cinema, and we’re going to need Big Box stores. We’re going to need a sewage plant.

“And then you’ve got to connect the arteries to everything else you need — the roads, the gas, the utilities.”

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.