Insurance companies as impact fund investors in emerging markets and developing economies

This is article 11 of 14 in the Impact Capital series. Here is article 10.

Insurance companies manage some of the world's largest pools of long-term capital, yet their participation in impact funds that target emerging markets and developing economies remains highly selective. Unlike banks or development finance institutions, insurers operate under liability-driven investment models shaped by regulatory capital regimes, asset-liability matching requirements and the need for stable, long-dated cash flows. These structural constraints materially influence both the scale and form of insurance allocations to impact strategies, favouring fund structures that offer predictable cash flows, long duration and a high degree of legal and regulatory certainty in line with insurance balance sheet requirements.

General characteristics

Insurance companies have emerged over the past decade as a structurally important but highly selective investor group within the impact investing landscape, particularly with respect to funds targeting emerging markets and developing economies. Their role differs materially from that of banks, development finance institutions or family offices, reflecting the specific liability structures, regulatory frameworks and asset-liability management requirements that define the insurance business model. Central to any allocation decision is cash-flow matching, as insurers must ensure that predictable and contractually reliable cash-flow profiles are available to cover long-dated insurance liabilities. As a result, insurers participate primarily through carefully structured fund vehicles that offer stable, modellable cash flows, long duration and a high degree of legal and structural certainty.

Globally, insurance companies manage assets in excess of USD 40 trillion. However, only a small fraction of these assets is allocated to impact strategies, and an even smaller share to impact funds focused on emerging markets and developing economies. According to triangulated estimates from the Global Impact Investing Network and the OECD, insurers account for approximately 8–12% of global impact investing assets under management, with the majority concentrated in developed markets. In EMDE-focused private impact funds, their share is estimated to be closer to 5–8%, reflecting higher regulatory capital costs, illiquidity, currency risk and country risk.

The relatively limited participation of insurers is primarily driven by regulation and its interaction with capital costs. Solvency II in Europe and comparable risk-based capital regimes in other jurisdictions impose high capital charges on equity, subordinated debt and illiquid fund exposures, particularly when underlying assets are located in non-OECD countries. From an economic perspective, these capital charges directly increase the effective cost of capital for insurers and materially affect relative attractiveness across asset classes. As a consequence, insurance companies strongly favour senior, investment-grade or near-investment-grade exposures with long tenors, stable and forecastable cash flows and transparent legal structures. Impact funds that can deliver these characteristics, most commonly through private debt, infrastructure debt or contracted infrastructure equity strategies, are significantly more likely to attract insurance balance sheet capital.

Within the insurance sector, only a subset of players are active impact fund investors in emerging and developing economies. These are predominantly large European insurance groups with established sustainability strategies, sophisticated asset-liability management frameworks and dedicated private markets or impact investment teams. Mutual insurers and insurers with large life insurance and annuity portfolios are structurally better positioned, as they seek long-dated assets with predictable cash flows to match long-term liabilities. By contrast, property and casualty insurers and smaller regional insurers typically have shorter liability durations and more restrictive investment frameworks, resulting in limited appetite for EMDE impact fund exposure.

From an asset allocation perspective, insurers generally approach impact investing as part of their strategic asset allocation process, which is typically model-driven. Expected returns are maximised subject to predefined risk factors, capital constraints and liquidity requirements, with risk budgets allocated across asset classes rather than themes. Impact funds are therefore not treated as a standalone asset class but are mapped into existing private equity or private debt buckets. The allocation to impact strategies emerges within these buckets where risk-return characteristics are competitive, and impact is generally viewed as a co-benefit rather than a primary objective. This framing explains why insurers rarely accept concessional returns purely for impact reasons and why impact strategies must meet market-based return expectations adjusted for regulatory capital costs.

Insurance companies typically invest through private debt funds, infrastructure debt funds and, more selectively, infrastructure equity funds with contracted revenues. Climate and energy transition strategies dominate, reflecting both regulatory signals and internal net-zero commitments. Other impact sectors such as financial inclusion, SME finance or agriculture remain less common, as they often lack the scale, predictability of cash flows or credit quality required to achieve capital-efficient treatment under insurance regulation without significant credit enhancement or public risk absorption.

Ticket sizes are generally large and reflect both economic and organisational considerations. Insurance companies rarely commit less than USD 20–30 million to a fund and often prefer commitments of USD 50 million or more. This is driven not only by internal due diligence costs but also by the extensive organisational requirements insurers impose on fund managers. These typically include a fully staffed and experienced investment and deal team, independent risk management, compliance and legal functions, robust reporting systems and institutional-grade governance. Such requirements are usually met only by larger platforms or later-stage funds, often with development finance institution participation, which further biases insurance capital towards established managers and scaled fund structures.

Concrete investment cases

The following case studies illustrate how insurance companies deploy balance sheet capital into emerging markets and developing economies through a limited number of highly structured impact fund vehicles. In contrast to banks or family offices, insurers typically appear as large, senior investors in funds where regulatory capital efficiency, duration matching and cash-flow visibility are explicitly embedded in the structure. Across the examples, insurance companies invest almost exclusively alongside public institutions, multilateral development banks or blended finance platforms, relying on independent fund managers for origination, portfolio construction and impact execution. Ticket sizes are generally significant, often exceeding EUR 25 million per fund, and investments are concentrated in climate, infrastructure and resilience strategies where long-term, contracted revenues can be aligned with insurance liabilities.

An illustrative example is Folksam, one of Sweden's largest insurance companies, which acts as an anchor investor in the Emerging Markets Climate Action Fund, a blended finance fund-of-funds managed by Allianz Global Investors with advisory support from the European Investment Bank. The fund was launched in 2021 with a target size of EUR 500 million and reached a final close of EUR 450 million in January 2025. It provides catalytic early-stage equity financing to climate mitigation and adaptation projects in emerging and developing countries, focusing on renewable energy, sustainable transport, forestry, water supply and wastewater infrastructure. Folksam committed EUR 150 million as one of the original anchor investors alongside European governments and development finance institutions. The structure combines public first-loss capital with senior commercial capital, allowing insurers to achieve market-rate returns while improving downside protection and capital efficiency.

A second example is Zurich Insurance Group, which has established itself as a leading institutional investor in EMDE impact funds, with an impact investment portfolio of USD 8.5 billion as of December 2024. Zurich's allocations include private equity and private debt funds active in financial inclusion and clean technology across emerging and frontier markets. Investments are made through the group investment management function and assessed under the same approval and risk governance processes as other alternative investments. The insurer explicitly requires market-rate, risk-adjusted returns, proven fund manager track records and institutional-grade governance, reinforcing the principle that impact is pursued as a complement to, rather than a substitute for, financial performance.

A third example is Generali Group, which has developed a dedicated impact investment platform focused on private market strategies in both developed and emerging economies. Generali invests through diversified private equity and private debt funds targeting climate transition, financial inclusion and SME finance, often using blended finance structures supported by development finance institutions. These structures enable Generali to participate with senior or pari passu capital while maintaining regulatory capital efficiency and alignment with long-term return objectives.

Another example is AXA Group as an investor in the IFC Emerging Markets Infrastructure Fund, managed by IFC Asset Management Company. The fund provides senior debt exposure to infrastructure projects in emerging and developing economies, focusing on energy, transport and utilities. AXA's participation reflects a common insurance approach of accessing EMDE infrastructure through multilateral platforms that offer strong environmental and social standards, preferred creditor status and enhanced risk mitigation.

Further examples include Allianz, which deploys capital into emerging market climate and infrastructure impact funds through its balance sheet and affiliated platforms, and Swiss Re, which allocates to EMDE-focused private debt and private equity funds as part of its sustainability-linked investment strategy. In both cases, investments are evaluated using the same credit, liquidity and capital efficiency criteria applied to other alternative assets, with an explicit requirement for commercial risk-adjusted returns and standardized impact measurement.

Current trends

Looking ahead, insurance companies' participation in EMDE impact funds is expected to grow gradually but remain structurally constrained. A clear trend is the increasing alignment between impact investing and insurers' net-zero and climate commitments, with climate-focused infrastructure and energy transition funds likely to attract the majority of new allocations.

A second trend is the continued development of blended finance structures explicitly designed to meet insurance capital requirements. Public guarantees, first-loss tranches and political risk insurance are increasingly used to reduce capital charges and improve risk-adjusted returns, without which many EMDE impact funds remain outside insurers' investable universe.

A third trend is rising internal sophistication, as large insurers build dedicated private markets and impact teams and further integrate impact strategies into their strategic asset allocation frameworks. This may gradually expand the range of investable strategies, though primarily within private debt and infrastructure.

At the same time, significant headwinds remain. Regulatory capital treatment continues to penalise illiquid and equity-like exposures, while geopolitical risk, currency volatility and conservative solvency interpretations constrain risk appetite. As a result, insurers are unlikely to become broad-based impact fund investors across sectors.

Despite these limitations, insurance companies play a strategically important role where participation occurs. Their ability to deploy large volumes of long-term capital aligned with predictable cash flows makes them particularly suited to financing infrastructure and climate solutions at scale. In an environment of constrained public budgets and cautious bank lending, the selective mobilisation of insurance balance sheets through well-structured impact funds remains an important, if narrow, component of closing the EMDE investment gap.

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