Nuclear presents ‘positive story’ for insurance investors

Insurers have identified the nuclear sector as an investment priority following a post-Brexit shake-up of financial services regulation.

This is according to Association of British Insurers senior policy adviser Rebecca Lea, who said government reforms of insurance regulations inherited from the EU opened up opportunities for infrastructure investment.

The EU’s Solvency II regulations, which were introduced in the wake of the 2008 financial crisis and still apply in the UK, prescribe the levels of capital that insurers must hold in order to ensure they can cover their liabilities.

However the UK government has introduced reforms to loosen up these capital regulations, which are partly designed to make it easier for insurers to invest a greater share of their capital in infrastructure and are due to come into force next year.

Lea told the Nuclear Industries Association’s annual conference that the reform of Solvency II offered the opportunity to unlock “new pools of capital” on insurers’ balance sheets, which could be worth as much as £100 billion for investment.

She added that the nuclear sector offers a “positive story” for insurers because of its “highly predictable” cash flow, adding: “It doesn’t create new money but it unlocks capital.

“We have very much identified nuclear as a priority for the sector to engage with.”

Lea’s comments follow the government’s decision to extend the regulated asset base financing mechanism to nuclear schemes. This enables investors to recoup returns while a project is being built and not have to wait until it is generating income.

The extension of RAB to nuclear has been principally designed to lower the cost of capital for EDF’s Sizewell C project, the next nuclear project in the development queue, in order to attract private investors.

Earlier, Sizewell C programme director Sue Williamson had told the conference that the planned project would only require 57 design changes compared to the 7,000 for Hinkley Point C.

She said the dramatic reduction was because Hinkley’s design had to be extensively revised from previous Finnish and French projects in order to pass UK regulatory regimes, such as the Generic Design Assessment for nuclear plants.

Williamson added that around 80% of the around 50 buildings being proposed at the Sizewell C site could be replicated unaltered from the Hinkley plant.

She said design changes had been the biggest driver of cost at Hinkley because they meant that work had to be constantly rescheduled.