Taiwan insurers cleared for offshore RE investment

A new Taiwan regulation has cleared the $450bn domestic industry to begin investing in real estate outside of Taiwan, but restrictions on such investments may place these insurance companies at a disadvantage.

The Taiwanese Insurance Bureau has announced that the $450 billion domestic insurance industry has been cleared to invest up to 10 percent of shareholder equity in direct overseas real estate, according to a CBRE Group report.

This does not include Taiwan insurers’ potential commitments to private equity funds, however – that is considered a separate part of their portfolio. Insurers were cleared to invest at most 2 percent of their funds in offshore private equity funds – including private equity real estate – in May of last year, according to Taiwan’s Insurance Laws and Regulations database.

CBRE’s global capital markets president Chris Ludeman said the investors had “expressed a keen interest in pursuing certain targets beyond national boundaries”.  However, the restrictions surrounding such investments remain quite steep.

For example, insurers must have a 200 percent risk-based capital ratio and will also not be allowed to leverage their deals. This would likely encourage wholly-owned assets rather than co-investments, according to the report.

Even more constricting is the fact that each and every deal will have to be brought to the TIB directly for approval on a case-by-case basis, an additional step that could add months to a deal’s process.  

“As much as [the Taiwanese regulators] would like to open up the insurance industry, they still want to have control over it,” CBRE’s Joseph Lin, Taiwan managing director, told PERE. Unfortunately, this will limit Taiwanese insurers’ expansion into direct real estate.

Overall, only a handful of insurers such as Cathay Life Insurance, the country’s largest, will be able to meet the government’s requirements, and the 100 percent equity requirement reduces the size of assets they can consider. Altogether, CBRE estimates that only $2.6 billion of Taiwan insurers’ capital, or 0.6 percent of their investable funds, will actually become available for real estate. 

Thus, Lin believes that private equity real estate funds will not really see much competition from Taiwanese insurers at this point. Most deals insurers do will have to be off-market, and they may have to pay a slightly higher premium. Cities insurers initially look at will probably include Shanghai, London, Frankfurt, New York and Toronto, according to the statement.

The TIB’s reasoning behind its tight regulations, Lin explained, is caution. As this is the Taiwan insurance industry’s first step into direct offshore real estate, the TIB wants to be sure it is a safe investment option. But he added that there is constant dialogue between regulators and insurers about deregulation – and this instance is no exception.

“As soon as the insurers can provide a level of comfort that [offshore real estate investment] is safe, restrictions could start to be relaxed,” Lin said. “It will just depend on how quickly they can do the first few deals.”