Arnaud Miroudel says BNP Paribas Cardif Life remains cautious on Asia equities
Life insurers operating in Asia are increasingly diversifying into credit to extend duration on the asset book and help meet their liabilities given the low interest-rate environment, a panel of chief investment officers at insurance companies in Asia told an AsianInvestor conference last week.
They are also eyeing private debt, with a view to capitalising on opportunities and filling the void in areas such as lending presented by tighter banking regulation, heard the Insurance Investment Forum in Hong Kong.
Arnaud Miroudel, Asia CIO at BNP Paribas Cardif, said his firm had been increasingly focusing on corporate bonds, as well as less liquid assets. He conceded that Asia ex-Japan equity valuations were low, but that the French insurer was below benchmark and still cautious on such assets.
“We want to be cautious in the execution, but we want as well to seize opportunities,” Miroudel added. “If we do not do that as a long-term investor during these days [of volatility], when do we do it?”
Boris Moutier, regional chief investment officer for Axa Asia, said he focused on credit names the firm was comfortable with while treating areas such as high yield with caution.
He stressed it was important to be strategic rather than tactical. “I would not start by buying private debt, but rather offshore corporate bonds,” he noted, saying many markets in the region now permitted a substantial portion of a local insurer’s balance sheet to be invested overseas.
Moutier said Axa uses currency-hedging solutions provided by banks and asset managers, adding that offshore credit investments were a priority because the firm expects them to provide a substantial payoff.
Hong Kong-based AIA has built up a big credit team in the region and prefers to manage assets in-house, with 85% of its general account assets invested in fixed income, chiefly in corporate debt, said group CIO Mark Konyn.
This has made it critical for AIA's product developers to be in close contact with the investment team, he added, as the lack of depth in regional credit is driving Asian insurers to diversify internationally.
Konyn pointed to growing exposure to US corporate credit, noting how some brokers offering access to offshore assets had set up onshore businesses in countries such as Korea and Taiwan.
“I think we will continue to see that, the shift that is taking place in banking and their need to give up their longer-dated commitments," he said, and insurers are well positioned to fill that gap.
Thomas Spirig, CIO of Zurich's Hong Kong investment management business, highlighted private debt as an area it was looking at, alongside infrastructure and term-lending.
Zurich has large exposure to sovereign bonds, he noted, so it must look at other opportunities. “We don’t need the liquidity we have on our books."
“We need to think of halving our investment into government bonds," said Spirig. "You do not need that liquidity in a life insurance company, at least most of the time.”
Unlike AIA, Zurich outsources up to 90% of its assets to external managers. “Usually you are way better off having an external asset manager than building expertise in-house,” Spirig said. “We are insurance companies, so why should we do credit analysis? That is an asset manager’s work.”
In response, Konyn said AIA had been operating in Asia for 100 years and as a consequence had developed a core competency in regional credit.
“Asset managers tend to be fair-weather supporters,” he added. “They will make a big commitment to the region when they think they can make money, but as soon as times are difficult they are laying off staff or pulling back from markets. That is not good for a long-term insurance company which needs a long-term commitment to being in Asia.”
Insurers are not alone in facing challenges obtaining yield, with pension funds in Asia, for instance, moving to increase their alternatives allocations to this end. Recent examples include China’s National Social Security Fund, Malaysia’s Employees Provident Fund and Taiwan's Bureau of Labor Funds.
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