Cathay Life plans to further increase its exposure to overseas investments despite official efforts to limit the amount of the insurer’s capital invested outside of Taiwan.
It also goes against efforts by local regulators to attract more capital from insurers into domestic assets to support the Taiwanese economy.
“We will continue to increase overseas investment to improve returns,” a Cathay Life spokesperson said in an email to Asian investor.
This is because bond issuance in Taiwan is insufficient and the yields are too low compared to the returns available if invested in fixed income securities overseas, even after taking into account the costs of hedging the currencies, the person said.
Despite Cathay Life’s domestic bonds performing better in the first quarter, international fixed income investments still tend to perform better over the long term, the spokesperson added.
At the end of March, the insurer’s overseas investments accounted for 65.5% of its NT$5.98 trillion ($192.68 billion) investment portfolio, 0.2 percentage point higher than at the end of 2018.
The rise was driven by a slight increase in Formosa bond investments, favorable translation effects due to the weaker Taiwan dollar and tighter credit spreads due to a more stable international environment, Cathay Life said.
Formosa bonds are foreign currency bonds issued in Taiwan by non-domestic companies. A cap on investments in these came into effect late last year and has since dampened Taiwanese insurers’ appetite for foreign investment by limiting holdings of Formosa bonds to 145% of their quota. overseas investment approved.
Cathay Life’s investment action plan sets it apart from its peers.
Overseas investments accounted for 68.23% of the NT$25.04 trillion combined investment portfolio of Taiwanese life insurers at the end of April. Down slightly from four months earlier, bucking the upward trend of recent years (see table below).
Source: Taiwan Insurance Institute
“It is normal that the attribution [in overseas investments] went down a bit because it can’t keep going up,” said Serene Hsieh, director of financial services ratings at S&P Global Ratings. Asian investornoting last year’s cap on Formosa bonds.
But it is likely to remain around those levels in the future, as overseas investment is always more attractive than domestic investment, she added.
If so, it will likely be a disappointment for Taiwan’s Financial Supervisory Commission (FSC).
The watchdog has repeatedly called on insurers to invest more domestically to help stimulate the economy.
Local lawmaker Julian Guo also argued that the overseas exposure of nearly 70% of Taiwanese insurers is not just unusually high, but a “world record”.
A government program unveiled by the FSC in June last year aims to order insurers to invest NT$150 billion over the next three years in so-called “five plus two” innovative industries, as well as in public construction and long-term care. .
The “five plus two” refers to five pillar industries – the internet of things, biomedical, green energy, smart machines and defence, later expanded to include new agriculture and the circular economy (linked product recycling).
However, Lee Chang-Ken, chairman of Cathay Financial Holdings, expounded at length on the merits of insurers investing overseas in March this year, fueling tensions between the industry and the regulator.
The insurance industry invests the money in overseas markets through its investment capabilities and risk control management, and then repatriates investment income, giving the economy a steady boost, Lee said.
Cathay Life declined to comment on what the FSC should do to get insurance funds to invest more domestically in the long term.
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