UK insurers share a "strong appetite" for continued UK investment through their pension books, although a lack of market opportunities could be limiting their ability to invest, according to a report from DLA Piper.

The report gathered feedback from DLA Piper's insurer clients managing UK pension books on their activity and intentions, revealing a "healthy and active" picture of UK investment into significant and varied productive UK assets across the infrastructure space.

In particular, the four insurers interviewed as part of the report, which have a combined bulk annuity book of £196.9bn, have an average of 59 per cent invested in UK-based assets (49 per cent, 59 per cent, 63 per cent and 66 per cent respectively).

DLA Piper highlighted the "sheer scale and volume" of these figures as confirmation that insurers are already actively investing in UK productive finance and other UK-based assets within the existing regulatory landscape.

What's more, the insurers surveyed all emphasised their growing appetite towards supporting investment in UK productive finance and their focus on growing existing UK based investments, despite an international footprint.

One insurer, for instance, said that their UK investments are a key focal point for growth, with total direct UK-based investments having increased from £1.4bn in 2022 to £13bn in 2023.

Another insurer noted that, as the majority of their liabilities are UK-denominated, UK-based investment is a key part of their asset strategy.

However, all four of the insurers cited a lack of market opportunities to satisfy investor demand as the biggest barrier to growing UK-asset capacity in their holdings

Contributing factors to poor market opportunities included issues around the UK borrowing market being dominated by big banks, leading to finance terms being structured to suit the requirements of these banks, as well as planning restrictions and cross-cutting regulatory issues increase costs, which are all ultimately passed to the investors.

In addition to this, the research found that local authorities have a lack of planning capacity and squeezed budgets, while some public sector entities could also be "crowding out" institutional investors.

Given these concerns, the insurers suggested that resolving planning capacity issues was "crucial" to enabling more supply and to removing investment barriers.

They also suggested that wider reform of the planning system could help to remove restrictions in this area and facilitate investment.

Respondents also highlighted the importance of tackling the overarching regulatory problems, such as coordination challenges, economic restrictions, and accountability flaws, and reducing bureaucratic hurdles to investment.

Three of the insurers surveyed also said that further reform of the current insurance regulatory regime was "crucial" for overcoming barriers to UK investment and indicated that further review of the recently reformed Solvency UK regime would be welcomed if possible.

Alongside these regulatory changes, the insurers suggested that the government could provide tax reliefs or credits in respect of investments in specific sectors such as renewable energy, infrastructure and technology, as these incentives would make these assets more attractive for investors.

Commenting on the report, DLA Piper partner and head of pensions de-risking, Amrit Mclean, said: "The spotlight lingers on UK pension scheme investment as being key to solving the productive assets challenge. However, we're yet to see much coverage of the critical role UK Life insurers are already playing in this space through their significant pension holdings.

"There is a real commitment and appetite in the market to even further leverage this significant investment power domestically, and expand their role in unlocking growth and security in UK projects.

"It's great to see insurers share that Solvency II isn't posing a significant hurdle to UK investment, and that they are keen to engage productively to see the remaining barriers to growing their UK investment portfolios addressed to further support the government's growth agenda and need for investment into productive UK assets."

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