Significant allocation shifts are on the cards for Thai insurance firms, and Hong Kong-based AIA's business in the country looks to be at the forefront of such moves.

Following regulatory changes in October last year widening the range of investable assets for Thai insurers to include domestic property and lower-grade foreign corporate bonds, some firms have taken action.

AIA Thailand, with around $20 billion in AUM, is certainly doing so. So far it is thought to be the country’s only life insurer to have made direct investments into local property, partly because this requires a hefty capital lock-up under risk-based capital (RBC) rules.

That said, this is expected to become less onerous under the second phase of Thailand’s RBC rules, which is due to come in next year.

AIA Thailand has been anticipating the progressive changes in OIC’s investment rules for quite some time and has been building up its capabilities in the new asset classes and alternatives, said chief investment officer Anucha Laokwansatit*.

The insurer has been allocating to offshore sovereign and quasi-sovereign bonds for a number of years but more recently has been increasing its holding in foreign corporate bonds, chiefly Asian names. AIA Group’s extensive credit coverage of Asian corporate issuers has helped on this front, Anucha told AsianInvestor.

AIA Thailand also handed a mandate for the first time to a third-party manager to manage non-Asian investment-grade dollar fixed income assets earlier this year. These offshore bonds, which are required to be hedged back to Thai baht, provide AIA with good return enhancement and duration to help match its local insurance liabilities, said Anucha.

The insurer intends to grow the externally managed fixed-income portfolio gradually, he added, as it should provide attractive additional opportunities in addition to its large position in the prime Thai corporate issuers.

This year, AIA Thailand has also gradually been building up its offshore listed equities portfolio, given the expanded limit for foreign investment.

The insurer currently has less than 10% of its portfolio in assets overseas.

“Expanding our offshore investment will facilitate the connectivity between local and global markets and strengthen our portfolio management,” said Anucha. “Our portfolio managers and analysts will gain better insight on the expanded investment universe; credit and equity research capability; risk management and portfolio diversification; and other international investment best practices.”

AIA Thailand also plans to expand its exposure to local real estate, which stands at less than 2% at present. However, it’s all about location and entry cost. “Property prices have gone up across all regions – we are keeping our eyes on good opportunities.

“Our investment philosophy is to provide long-term capital for the social and economic development of the country,” he added. “Our real estate investments showcase that, as well as our commitment to international best practices and eco-friendly design.”

It seems that AIA has not been not alone in its moves. Some other Thai insurers have been quick to make allocations as a result of the new investment rules in late 2013 and early this year, said Juliet Siette, vice-president of insurance coverage at Goldman Sachs Asset Management in Hong Kong. She declined to provide names.

Thailand's Office of Insurance Commission (OIC) had in October last year raised the limit of offshore investments to 15% of total invested assets. It also for the first time allowed investment in offshore corporate bonds, with the minimum rating for foreign issues lowered from BBB to BBB-. 

There was previously a specific dollar limit for each asset class and each life insurer with no clear rule on how OIC determined the approved amount.

Local insurance firms can also, as of October last year, invest in domestic infrastructure funds, and several are said to have done so. 

Meanwhile, they are awaiting the imminent release of rules, approved by the OIC in late October this year that would allow them to provide loans to Reits. The regulation is expected to come out in December.  

* See AsianInvestors' forthcoming (December) issue of the magazine for a full feature on Asian insurers' moves to diversify their portfolios.

** The firm picked up AsianInvestor's inaugural award for institutional excellence in Southeast Asia last month; Anucha will be attending our awards dinner to collect the prize this evening (December 3) at the Westin Hotel in Singapore, along with the other winners.