Faced with limited investment channels, insurance companies in Taiwan have traditionally stuck to cash deposits, foreign securities and government bonds. But as yields fall in their bond market, domestic insurers are starting to look elsewhere, with some seeking risk diversification by entering new countries – and asset classes.
Thanks to the loosening of government restrictions over the past five years, Taiwanese insurers can now commit inside and outside the country. More recently, Taiwan’s Financial Supervisory Commission relaxed the constraints on overseas investments, previously capped at 30 percent of total assets. In March, it introduced a three-tier system based on the insurer’s risk-based capital ratio, allowing them to allocate a greater portion of their portfolios abroad.
The $140 billion Cathay Life Insurance, the country’s biggest insurer, expects to add another $1 billion on to its $3 billion alternatives allocation within the next year. The insurer has already backed KKR’s $6 billion Asian Fund II and Vista Equity Partners’ $5.8 billion sixth buyout fund.
Meanwhile, the $180 billion Fubon Life Insurance company said it would increase its debt and private equity exposure in the US, targeting $1 billion across four managers in the next 12 months. The insurer has previously made commitments to funds managed by Blackstone, KKR and Warburg Pincus, according to PEI data.
Taiwan Life, which merged in September 2015 with local insurer CTBC Life Insurance, is said to be looking to invest about $300 million in the asset class in the next year.
Taiwanese insurers are, however, cautious about overexposure to alternatives. Under the current regulations, they can only invest up to 2 percent of their investable capital, comprising shareholders’ equity and statutory reserves, into private equity and hedge funds. While local insurers have been lobbying to lift the investment cap to 5 percent, the government is yet to make a decision.
EY Taipei estimates that as much as NT$400 billion ($13 billion; €11 billion) of unlocked capital could be invested in private equity if the government lifts the ceiling.
And the Taiwanese are not the only ones. Insurers in neighbouring China and Japan are also making significant inroads into private equity, as we explore in-depth in our next issue.
Yield-chasing, overcapitalised insurers in Asia are mainly drawn to private equity’s ability to generate returns in a low interest rate environment. And the fundamentals are good: multiple reforms, increasing awareness of retirement needs in the region’s ageing societies and high acceptance of insurance products will drive increased allocation to private equity in the near term.
Don’t miss our analysis of Asian insurance groups’ moves into private equity in the November issue of Private Equity International