Tensions appear to be building in Taiwan over the heavy investments made by local insurers overseas.
Lawmaker Julian Guo flagged last week how Taiwan's insurers were investing almost 70% of their investment funds overseas – a level not just unusually high, he said, but also a world-record high. By comparison, Guo reportedly added, the corresponding levels of overseas investment for insurers were only 21.6% in Japan, 8.3% in South Korea, 2% in China and 12% in the US.
Taiwan's Financial Supervisory Commission, meanwhile, has repeatedly called on insurers to invest more domestically to help drive the economy. And FSC chairman Wellington Koo is scheduled in three months to release a report on the issue after studying South Korea, which he says is economically similar to Taiwan.
But on Tuesday, a high-profile member of Taiwan's insurance community fired back.
The insurance industry’s high overseas investments are indeed benefiting society, Lee Chang-Ken, president of Cathay Financial Holdings, said during an analysts' meeting webcast live on Tuesday. For that, they merited a plaque of recognition, he joked.
He then went to great lengths to explain how insurers’ overseas investments supported Taiwanese economic growth in a variety of ways.
In his view, there is a danger of liquidity flooding Taiwan’s capital markets if insurers did not invest as much as they did overseas, which would lower deposit rates to unhealthy levels and hamper economic growth.
The insurance industry invests the money in overseas markets through its investment capabilities and risk-control management and then repatriates the investment income, giving the economy a regular boost, Lee said.
Bancassurance services also contribute a big proportion of the fees earned by Taiwanese banks. Insurance companies, in addition, are hiring more wealth management specialists because there are overseas investment channels, he said. These can create more job opportunities and drive domestic consumption.
Overseas investments can also help to maintain stability in the foreign exchange market as there have been a lot of inflows from overseas investors in the last few years, he said.
Taiwan's life insurers had 68.52% of their NT$23.8 trillion ($770 billion) total capital invested as of February, according to the Taiwan Insurance Institute. Cathay Life had 65.3% (58.6% in bonds and 6.7% in equities) of its NT$5.76 trillion investment portfolio invested abroad as of end-2018, 3.3 percentage points more than the previous year.
Lee also spelled out some of the differences between Taiwan and South Korea and how the island is "several years ahead of South Korea" in terms of its overseas investments.
Government bond issuance last year amounted to $106 billion in South Korea, for example, but only $17 billion in Taiwan, he said.
Yields on the island are also lower, and have tended to be for the best part of the last decade. 10-year government bonds in Taiwan are currently about 0.75% but more like 1.9% in South Korea. In addition, the debt maturity profile in South Korea stretches out to as long as 50 years, Lee said.
“If I am an insurer in Korea, I am very happy investing in Korea. Why do I need to take risk overseas?” he said.
That said, Korean insurers have also been upping their overseas exposures in recent years, from 4.7% at end-2013 to 14.2% in November last year as government bond yields fell. The regulatory limit for overseas investment in South Korea is 30%.